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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.

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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.

Learn More about Interest rates here:

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