An increase in the expected future marginal product of capital would cause the IS curve to
A)shift up and to the right.
B)shift down and to the left.
C)remain unchanged.
D)remain unchanged if firms face borrowing constraints; otherwise, shift down and to the left.

Question

Quizplus · Accepted Answer

An increase in the expected future marginal product of capital means that firms can expect higher returns on investment, leading to an increase in investment demand. This increase in investment demand shifts the IS curve up and to the right.

An Increase in the Expected Future Marginal Product of Capital