Question

When should investment be undertaken in terms of MEI and the Rate of Interest?

Options

• When \[MEI<\text{Rate of Interest}\]

• When \[MEI=\text{Rate of Interest}\]

• When \[MEI>\text{Rate of Interest}\]

• When \[I_g=I_r\]

Answer 1

Investment is undertaken when the Marginal Efficiency of Investment (MEI) exceeds the Rate of Interest. In this case, the expected return from investment is greater than its interest cost.