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According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?
- a)MEC is the ratio of prospective yield to supply price.
- b)MEC is the rate of interest that equates present value of annuities to supply price.
- c)MEC is the difference between supply price and expected yield.
- d)MEC is the percentage change in supply price over time.
Correct answer is option 'B'. Can you explain this answer?
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According to Keynes, how is the Marginal Efficiency of Capital (MEC) d...
Keynes defined the Marginal Efficiency of Capital (MEC) as the rate of interest that equates the present value of the stream of expected returns from a capital asset to its supply price. This concept is crucial in Keynesian economics as it helps understand the investment behavior of firms and the overall level of aggregate demand in an economy.
Definition of MEC:
The Marginal Efficiency of Capital (MEC) is the rate of interest at which the present value of the expected returns from a capital asset equals its supply price.
Relation to Supply Price and Expected Returns:
- The MEC is determined by comparing the supply price of a capital asset with the expected returns it is expected to generate over its lifetime.
- If the MEC is higher than the rate of interest prevailing in the economy, it indicates that the expected returns from the capital asset exceed its supply price, making it an attractive investment opportunity.
- On the other hand, if the MEC is lower than the prevailing interest rate, it suggests that the supply price of the capital asset is higher than its expected returns, potentially deterring firms from making new investments.
Significance in Keynesian Economics:
- The MEC plays a crucial role in shaping the investment decisions of firms in an economy.
- It helps in understanding the factors influencing the level of investment and, consequently, the overall level of aggregate demand.
- By analyzing the MEC, policymakers can assess the effectiveness of monetary and fiscal policies in stimulating investment and promoting economic growth.
In conclusion, the Marginal Efficiency of Capital (MEC) is a key concept in Keynesian economics that helps in evaluating the relationship between the supply price and expected returns of a capital asset. It provides insights into the investment behavior of firms and the factors influencing aggregate demand in an economy.
Definition of MEC:
The Marginal Efficiency of Capital (MEC) is the rate of interest at which the present value of the expected returns from a capital asset equals its supply price.
Relation to Supply Price and Expected Returns:
- The MEC is determined by comparing the supply price of a capital asset with the expected returns it is expected to generate over its lifetime.
- If the MEC is higher than the rate of interest prevailing in the economy, it indicates that the expected returns from the capital asset exceed its supply price, making it an attractive investment opportunity.
- On the other hand, if the MEC is lower than the prevailing interest rate, it suggests that the supply price of the capital asset is higher than its expected returns, potentially deterring firms from making new investments.
Significance in Keynesian Economics:
- The MEC plays a crucial role in shaping the investment decisions of firms in an economy.
- It helps in understanding the factors influencing the level of investment and, consequently, the overall level of aggregate demand.
- By analyzing the MEC, policymakers can assess the effectiveness of monetary and fiscal policies in stimulating investment and promoting economic growth.
In conclusion, the Marginal Efficiency of Capital (MEC) is a key concept in Keynesian economics that helps in evaluating the relationship between the supply price and expected returns of a capital asset. It provides insights into the investment behavior of firms and the factors influencing aggregate demand in an economy.
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According to Keynes, how is the Marginal Efficiency of Capital (MEC) d...
Keynes defines MEC as the rate of discount that would make the present value of expected returns from a capital asset during its life equal to its supply price. This can be expressed as an equation: MEC = (R1 + R2 + ... + Rn) / Sp, where R1, R2, ..., Rn are the prospective yields over different years.
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According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer?
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According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer?.
According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for According to Keynes, how is the Marginal Efficiency of Capital (MEC) defined in relation to the supply price and expected returns of a capital asset?a)MEC is the ratio of prospective yield to supply price.b)MEC is the rate of interest that equates present value of annuities to supply price.c)MEC is the difference between supply price and expected yield.d)MEC is the percentage change in supply price over time.Correct answer is option 'B'. Can you explain this answer?.
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