Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of at least 20 percent; another $10 billion yielding at least 15 percent; another $10 billion yielding at least 10 percent; and so forth.
a. Draw this relationship between the expected return and investment expenditure.
b. What will be the equilibrium level of aggregate investment if the real interest rate is as follows:
15% 10% 5%