The investment demand curve portrays an inverse (negative) relationship between
A) investment and real GDP.
B) the real interest rate and investment.
C) the nominal interest rate and investment.
D) the price level and investment.

Question

Quizplus · Accepted Answer

The investment demand curve shows the negative relationship between the real interest rate and investment. As the real interest rate increases, the cost of borrowing increases, which decreases the amount of borrowing and investment. On the other hand, if the real interest rate decreases, borrowing becomes cheaper, and investment increases.

The Investment Demand Curve Portrays an Inverse (Negative) Relationship Between