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Marginal Efficiency of Capital (Part 1) - Macro Economic Framework, Macroeconomics Video Lecture | Macro Economics - B Com
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FAQs on Marginal Efficiency of Capital (Part 1) - Macro Economic Framework, Macroeconomics Video Lecture - Macro Economics - B Com
| 1. What is Marginal Efficiency of Capital? |  |
Ans. Marginal Efficiency of Capital refers to the expected rate of return on investment in the capital goods. It determines the level of investment that businesses are willing to undertake based on the expected profitability of the investment.
| 2. How is Marginal Efficiency of Capital calculated? | |
Ans. The Marginal Efficiency of Capital is calculated by comparing the expected rate of return on an investment project with the prevailing interest rate. If the expected rate of return is higher than the interest rate, the investment is considered profitable, and the Marginal Efficiency of Capital is positive.
| 3. What factors determine the Marginal Efficiency of Capital? | |
Ans. Several factors influence the Marginal Efficiency of Capital, including the level of business confidence, technological advancements, government policies, and market conditions. These factors affect the expected profitability and risk associated with investment projects, thereby influencing the Marginal Efficiency of Capital.
| 4. How does the Marginal Efficiency of Capital impact economic growth? | |
Ans. The Marginal Efficiency of Capital plays a crucial role in determining the level of investment in an economy. Higher Marginal Efficiency of Capital encourages businesses to undertake more investment projects, leading to increased capital stock and economic growth. Conversely, lower Marginal Efficiency of Capital may result in reduced investment and slower economic growth.
| 5. How does the Marginal Efficiency of Capital relate to the business cycle? | |
Ans. The Marginal Efficiency of Capital is closely linked to the business cycle. During periods of economic expansion, when business confidence is high and market conditions are favorable, the Marginal Efficiency of Capital tends to be higher, leading to increased investment. In contrast, during economic downturns, the Marginal Efficiency of Capital may decrease as businesses become more cautious about undertaking new investment projects.
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