alleryIn a capitalist economy, an investor's decision on how much to invest is governed primarily by the:
ADirective issued by the planning authority
BExpected rate of return on capital
CEqual-income objective of the state
DWage rate paid to unskilled labour
Answer & Solution
Correct answer: B. Expected rate of return on capital
1. Consumption and saving are done by consumers; investment is done by entrepreneurs.
2. Investment depends on the rate of return on capital.
3. The greater the expected return, the greater the investment.
4. Planning directives and equal-income aims belong to socialism, and the wage rate is not the governing factor for investment, so they are eliminated.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 1 Unit II "Basic Problems of an Economy and Role of Price Mechanism", p.3_
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