The investment function is A) I₀ + I_r x r B) I₀ - I_r x _YD C) I₀ - I_r x r D) I₀ + I_r x Y^D

Question

Quizplus · Accepted Answer

The investment function typically includes autonomous investments (which do not depend on the interest rate) and induced investments (which are negatively related to the interest rate). The correct formula, therefore, is the one that subtracts a term involving the interest rate (r) from autonomous investments, indicating that as interest rates increase, investment decreases. This is represented by option C: autonomous investment minus the product of a sensitivity factor and the interest rate.

The Investment Function Is