Question

Let's suppose we are living in a country in which opportunities of making profits, and entreprenurial activity are main determinants of investment demand. In this scenario, how is parameter b? How this affect the elasticity of investment with respect to changes in interest rate? How a cut in the benchmark interest rate could affect the quantity of investment in the economy? Explain thoroughly, use models, and graphs.

Answer 1

Speculative trading is a desirous interest of an entrepreneur. whenever they find some opportunities in the market they are ready to invest in that plans. Variance in the rate of interest will affect the investment which will be done by an entrepreneur. Interest rate are the very important factor for the entrepreneur they invest and interested in the plans when the ROI is less and will give them higher return. The activities of an Entrepreneur guide to the values of generation and also aid in the development and growth of the Economy.

IS-LM curve of hicks refers to the relation between the asset market and the interest rates that is how the creditable money can affect the market investment by an entrepreneur. Minimization in the interest ratemaximize the supply of money and demand for money alos increase this guides to the more level of investment by the entrepreneur.