Refer to the diagrams. The location of curve B depends on the
A) level of real GDP.
B) location of curve A only.
C) interest rate only.
D) interest rate together with the location of curve A.

Question

Refer to the diagrams. The location of curve B depends on the
A) level of real GDP. 
B) location of curve A only. 
C) interest rate only. 
D) interest rate together with the location of curve A.

Quizplus · Accepted Answer

The location of curve B depends on both the interest rate and the location of curve A. The position of curve A determines the level of investment demand at each interest rate, while the interest rate affects the level of investment demand as well. Therefore, the location of curve B depends on the intersection of the investment demand curve (curve A) and the savings supply curve at a certain interest rate.

Refer to the Diagrams