Question

When MEC falls and becomes equal to ROI, it indicates ______.

Options

• A crisis in the economy

• The equilibrium level of investment

• That all businesses are making losses

• The beginning of a liquidity trap

Answer 1

When MEC falls and becomes equal to ROI, it indicates the equilibrium level of investment.

Explanation:

Entrepreneurs keep investing as long as MEC is greater than ROI. With each additional investment, MEC gradually falls due to diminishing returns. When MEC equals ROI, no further new investment takes place, and the economy reaches its equilibrium level of investment.