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 ______ and investment ______.

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 ______ and investment ______.

Quizplus · Accepted Answer

When the demand curve shifts from S to S′, the interest rate increases and investment decreases. This is because the new equilibrium point (E′) occurs at a higher interest rate (r′) but a lower level of investment (I′).

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