The intercept of the investment function
A) tells us by how much investment spending is discouraged by a one-unit increase in the short-term, risky, nominal interest rate.
B) tells us by how much investment spending is discouraged by a one-unit increase in the long-term, risky, real interest rate.
C) tells us what the level of investment spending would be if the long-term, risky, real interest rate were 0.
D) tells us what the level of investment spending would be if the short-term, risky, nominal interest rate were 0.

Question

Quizplus · Accepted Answer

The intercept of the investment function indicates the level of investment spending when the interest rate is zero, specifically referring to the scenario where the long-term, risky, real interest rate is 0. This is because investment decisions are typically more influenced by long-term, real interest rates rather than short-term, nominal rates, as investments are usually for longer durations and are adjusted for inflation.

The Intercept of the Investment Function