Refer to the diagram. Which of the following would increase investment while leaving an existing investment demand curve, say
$I D _ { 2 }$ , in place?
A) a lower interest rate
B) a higher interest rate
C) lower expected returns on investment
D) higher expected returns on investment

Question

Refer to the diagram. Which of the following would increase investment while leaving an existing investment demand curve, say
$I D _ { 2 }$ , in place?
A) a lower interest rate 
B) a higher interest rate 
C) lower expected returns on investment 
D) higher expected returns on investment

Quizplus · Accepted Answer

A lower interest rate would increase investment because it would make borrowing money cheaper and less expensive to invest. This would shift the investment demand curve outward, indicating a higher quantity of investment demanded at every interest rate level. Higher interest rates would have the opposite effect, as they would make borrowing more expensive and decrease investment demand. Changes in expected returns on investment would shift the entire investment demand curve, not just increase investment while leaving the curve in place.

Refer to the Diagram ID2I D _ { 2 }ID2​ , in Place? A) a Lower Interest Rate B) a Investment

Refer to the Diagram $I D _ { 2 }$ , in Place?
A) a Lower Interest Rate
B) a Investment