38 



MULTIPLE PURPOSE RIVER DEVELOPMENT 



profit above borrowing costs. And since total profit increases so 

 long as the rate of return exceeds the borrowing cost, investment 

 will be pushed to the point at which the rate of return at the 

 margin will equal the interest rate. 



An increase in the rate of interest disqualifies some of the pre- 

 viously marginal investment possibilities. Accordingly, for every 



D Demand for investment funds 



FIGURE 10. The Enterprise' s Demand for Investment Funds 



conceivable rate of interest, the total investment which an enter- 

 prise will make can be discovered, and a curve indicating the 

 enterprise's demand for investment funds can be plotted, as in 

 Figure 10. By adding the demand curves of all the enterprises in 

 the economy horizontally, a schedule of the total demand for 

 investment funds can be derived. 



Combining the supply and demand schedules as in Figure 11, 

 we obtain a picture of the capital market and how it determines 



