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Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total of $10 billion of investment is profitable. Similarly, total investment increases by $5 billion for each successive 2-percentage-point decline in the interest rate.
Describe the relevant relationship between the interest rate and investment in a table, on a graph, and as an equation. Put the interest rate on the vertical axis and investment on the horizontal axis. In your equation use the form i = a + bI, where i is the interest rate, a is the vertical intercept, b is the slope of the line (which is negative), and I is the level of investment.

Answer :

CONTEXTO1019GO

The relationship between the interest rate and investment can be described using a table, graph, and equation.

Table:

Interest rate Investment

16%                      0

14%                      $5 billion

12%                      $10 billion

10%                      $15 billion

8%                      $20 billion

6%                      $25 billion

Graph Can't be put here.

Equation:

i = -2I + 16

In this equation, i is the interest rate, I is the level of investment, and the values of a (the vertical intercept) and b (the slope of the line) are calculated as follows:

a = 16

b = -2

The negative value of b indicates that as the interest rate decreases, the level of investment increases. This is consistent with the data in the table and the shape of the line in the graph.

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