marginal efficiency of investment

      in economics, expected rates of return on investment as additional units of investment are made under specified conditions and over a stated period of time. A comparison of these rates with the going rate of interest may be used to indicate the profitability of investment. The rate of return is computed as the rate at which the expected stream of future earnings from an investment project must be discounted to make their present value equal to the cost of the project.

      As the quantity of investment increases, the rates of return from it may be expected to decrease because the most profitable projects are undertaken first. Additions to investment will consist of projects with progressively lower rates of return. Logically, investment would be undertaken as long as the marginal efficiency of each additional investment exceeded the interest rate. If the interest rate were higher, investment would be unprofitable because the cost of borrowing the necessary funds would exceed the returns on the investment. Even if it were unnecessary to borrow funds for the investment, more profit could be made by lending out the available funds at the going rate of interest.

      The British economist John Maynard Keynes (Keynes, John Maynard) used this concept but coined a slightly different term, the marginal efficiency of capital, in arguing for the importance of profit expectations rather than interest rates as determinants of the level of investment.

* * *


Universalium. 2010.

Look at other dictionaries:

  • investment — /in vest meuhnt/, n. 1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. 2. a particular instance or mode of investing. 3. a thing invested in, as a business, a quantity of… …   Universalium

  • Marginal abatement cost — Part of a series on Green economics Concepts …   Wikipedia

  • Marginal conditional stochastic dominance — In finance, marginal conditional stochastic dominance is a condition under which a portfolio can be improved in the eyes of all risk averse investors by incrementally moving funds out of one asset (or one sub group of the portfolio s assets) and… …   Wikipedia

  • MEI — can refer to:*MEI Academy an international school *Middle East Institute *MEI (company) a division of Mars Incorporated. *Matsushita Electric Industrial Co., Ltd. *MEI (Mathematics in Education and Industry) is an examination board affiliated… …   Wikipedia

  • Mei — or MEI may refer to: Contents 1 Abbreviations 2 People 3 Places 3.1 China 3.2 Portugal …   Wikipedia

  • Luigi Pasinetti — (born September 12, 1930) is an Italian economist of the Post Keynesians school. Pasinetti was a second generation Cambridge Keynesian and a student of Piero Sraffa. Along with his teacher, as well as Joan Robinson, he was one of the prominent… …   Wikipedia

  • Инвестиции — INVESTMENT 1. (также financial investment) Вложения в ценные бумаги. Портфельные инвестиции (см. Portfolio) имеют своей целью получение спекулятивной прибыли за счет роста стоимости финансовых активов. 2. Затраты капитала (capital expenditure) на …   Словарь-справочник по экономике

  • Предельная  эффективность капитала/инвестиций — MARGINAL  EFFICIENCY  OF  CAPITAL/INVESTMENT.  Норма прибыли, ожидаемая с каждой дополнительно вложенной суммы капитала. Рассмотрим графики. Предельная эффективность инвестиций снижается по мере их увеличения (график (а)). Это происходит потому,… …   Словарь-справочник по экономике

  • Economics — This article is about the social science. For other uses, see Economics (disambiguation). For a topical guide to this subject, see Outline of economics. Economics …   Wikipedia

  • Classical theory of growth and stagnation — Classical economics refers to work done by a group of economists in the eighteenth and nineteenth centuries. The theories developed mainly focused on the way market economies functioned. Classical Economics study mainly concentrates on the… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.