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.

Question

Quizplus · Accepted Answer

According to the Euler equation, the optimal investment schedule shifts to the right if the real interest rate is expected to decrease in the future. This can occur if the future total factor productivity (z') increases. Therefore, the correct choice is C.

When Drawn Against the Real Interest Rate,the Optimal Investment Schedule