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 between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion yielding between 10 and 15 percent; and so forth.

a. Cumulate these data and present them graphically using the graph below, putting the expected rate of return (and the real interest rate) on the vertical axis and the amount of investment on the horizontal axis.

b. What will be the equilibrium level of aggregate investment if the real interest rate is:

15 percent: $ billion

10 percent: $ billion

5 percent: $ billion

30 Tools 25 ID 20 Expected rate of return, percent 15 10 5 0 10 20 30 40 50 60 Investment (billions of dollars)