The relationship between rate of interest and investment demand is ___________.

direct

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inverse

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constant

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none of the above

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Solution

The correct option is B inverse
Marginal efficiency of investment (MEI) refers to the expected rate of return from the allocation of a proportion of income or capital invested in the business. There is a inverse relation between the rate of interest and investment. If the rate of interest is high then people will take less loan from the bank and they will have less money to invest in whereas if rate of interest is low then people will take more loan from the bank to invest in the business.

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