## How is MEC calculated?

Calculate MEC. **Divide the sum of the projected profits from the investment (over the item’s service life) by the total investment under consideration**.

## What is marginal efficiency of capital and how is it calculated?

The MEC is **the net rate of return that is expected from the purchase of additional capital**. It is calculated as the profit that a firm is expected to earn considering the cost of inputs and the depreciation of capital. It is influenced by expectations about future input costs and demand.

## What is meant by marginal efficiency of investment?

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**. … Additions to investment will consist of projects with progressively lower rates of return.

## What is the 7 pay test?

The seven-pay test determines **whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years**.

## How can we avoid MEC?

To avoid being declared a modified endowment contract, **a life insurance policy must meet the “7-pay” test**. This test calculates the annual premium a life insurance policy would need to be paid up after seven level annual premiums. (When a life insurance policy is “paid up,” no further premiums are due.)

## Why MEC is downward sloping?

The downward slope of the MEC curve indicates **the negative relationship between the level of investment and the MEC**. … First, increase in the investment on one hand reduces the marginal productivity of the capital asset due to operation of the diminishing returns.

## What is accelerator theory of investment?

The accelerator theory is **an economic postulation whereby investment expenditure increases when either demand or income increases**. … The accelerator theory posits that companies typically choose to increase production, thereby increasing profits, to meet their fixed capital to output ratio.

## What is the simple accelerator principle of investment?

The accelerator principle of investment is that **investment depends upon the growth of output and implies that investment will be unstable**. Investment will fall simply because output grows at a slower rate. For investment just to remain stable, output growth must be constant rate. Let us consider a simple example.

## What is theory of multiplier?

The Concept of Multiplier: The theory of multiplier occupies an important place in the modern theory of income and employment. … The essence of multiplier is that **total increase in income, output or employment is manifold the original increase in investment**. For example, if investment equal to Rs.

## What is the formula of investment multiplier?

The ratio of ΔY to ΔI is called the investment multiplier. It can be derived, as follows, from the equilibrium condition (Y = C + I + G) together with the consumption equation (C = a + bY). … This equation describes the new equilibrium, once the economy has adjusted to the increase in the level of investment.