Which of the following is most likely to cause a rightward shift of the investment demand curve?
A)An increase in income
B)A decrease in the market interest rate
C)An improvement in business expectations
D)An increase in the market rate of interest
E)A decrease in income

Question

Quizplus · Accepted Answer

An improvement in business expectations means that firms anticipate higher profits in the future, which encourages them to invest more today. This, in turn, leads to a rightward shift of the investment demand curve. Choices A and E would likely cause a leftward shift of the investment demand curve, as consumers and firms would have less income to spend on investment goods. Choice B and D are confusing because they refer to the market interest rate, but it is not clear whether they mean the real or nominal interest rate. In any case, the effect of changes in interest rates depends on the underlying reasons for those changes. For example, a decrease in the market interest rate might signal a weaker economy, which could discourage investment and cause a leftward shift of the investment demand curve. Conversely, an increase in the market interest rate might signal tighter monetary policy, which could reduce inflation expectations and stimulate investment if it is expected to increase the future profitability of investment goods.

Which of the Following Is Most Likely to Cause a Rightward