Exhibit: Saving, Investment, and the Interest Rate 2 the Economy

question 4

Multiple Choice

Exhibit: Saving, Investment, and the Interest Rate 2 The economy begins in equilibrium at point E, representing the real interest rate r₁ at which saving S₁ equals desired investment I₁. What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?

• A)point A
• B)point B
• C)point C
• D)point D

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Definitions:

Average Costs

The total costs (fixed and variable) divided by the total output, indicating the cost per unit of output produced.

Decreasing Returns to Scale

A situation in which, when the scale of production is increased, the output increases at a proportionally lower rate.

Minimum Efficient Scale

The smallest level of production a company can achieve while still taking full advantage of economies of scale in terms of costs per unit.

Long-Run Average Cost Curve

A graphical representation showing the lowest average cost of producing any output level when all inputs can be varied.