Figure 11-1
-Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b). As a result, the interest rate

Question

Figure 11-1 
-Refer to Figure 11-1. Suppose the Fed takes action that shifts the demand curve from S to S′, as illustrated in Panel (b). As a result, the interest rate

Quizplus · Accepted Answer

When the demand curve shifts from S to S', the interest rate increases from r to r' and investment decreases from I to I'. This is because the higher interest rates discourage borrowing and investment.

Figure 11-1 -Refer to Figure 11-1. Suppose the Fed Takes Action That