When drawn against the real interest rate, the optimal investment schedule shifts to the right if
A) current total factor productivity z increases.
B) current total factor productivity z decreases.
C) future total factor productivity z' increases.
D) future total factor productivity z' decreases.
E) future total factor productivity z' remains constant.

Question

Quizplus · Accepted Answer

An increase in future total factor productivity (z') indicates that the return on investment in the future is expected to be higher than the current return. This positive outlook on future investment opportunities increases the demand for investment, shifting the optimal investment schedule to the right.

When Drawn Against the Real Interest Rate, the Optimal Investment