Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?
A) a lower interest rate
B) lower expected rates of return on investment
C) a higher interest rate
D) higher expected rates of return on investment

Question

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?
A) a lower interest rate 
B) lower expected rates of return on investment 
C) a higher interest rate 
D) higher expected rates of return on investment

Quizplus · Accepted Answer

Higher expected rates of return on investment would increase the expected profit from investment, leading to an increase in investment demand and a shift of the investment demand curve from ID1 to ID2. A lower interest rate would shift the investment demand curve to the right (to ID2), but this option is not given in the choices. A higher interest rate and lower expected rates of return on investment would decrease investment demand and shift the curve to the left (to ID3).

Refer to the Diagram