Given the expected rate of return on all possible investment opportunities in the economy,
A) an increase in the real rate of interest will reduce the level of investment.
B) a decrease in the real rate of interest will reduce the level of investment.
C) a change in the real interest rate will have no impact on the level of investment.
D) an increase in the real interest rate will increase the level of investment.

Question

Quizplus · Accepted Answer

According to the investment demand curve, as the real interest rate increases, the level of investment decreases. This is because as the cost of borrowing money increases, investment becomes more expensive and less attractive. Therefore, an increase in the real rate of interest will reduce the level of investment.

Given the Expected Rate of Return on All Possible Investment