The diagram below show the market for financial capital assuming that national income is constant at potential GDP,Y*.
FIGURE 25-2
-Refer to Figure 25-2.Suppose national saving is reflected by NS 0 and investment demand is reflected by I0D.Now suppose there is a reduction in government purchases.What is the effect on investment demand?
A) National saving shifts to NS1,causing an increase in the quantity of investment demanded from I* to I 2.
B) There is no effect on NS or ID,and the quantity of investment demanded remains at I*.
C) Investment demand shifts to I1D,causing an increase in the quantity of investment demanded from I* to I1.
D) Investment demand shifts to I1D,causing an increase in the quantity of investment demanded from I* to I3.
E) National saving shifts to NS1,and investment demand shifts to I1D,causing an increase in the quantity of investment demanded from I* to I3.
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