The investment function consists of A) a baseline level of investment (I₀) and a term consisting of the real interest rate times the MPC. B) a baseline level of investment (I₀) and a term consisting of the real interest rate times I_r (the slope-of-. the-investment function parameter). C) a baseline level of investment (I₀) and the real interest rate. D) a baseline level of investment (I₀) and a term consisting of the real interest rate times disposable income.

Question

Quizplus · Accepted Answer

The investment function typically includes a baseline level of investment and a term that adjusts this baseline based on the real interest rate, often represented by a parameter that indicates how investment changes with the interest rate. This is most accurately described in option B, where the term consists of the real interest rate times a specific parameter (I_r), which represents the sensitivity of investment to changes in the real interest rate.

The Investment Function Consists of