-Refer to the above diagram.Initially assume that the investment demand curve is I_d1.Which of the following effects of a budget deficit might shift the investment demand curve from I_d1 to I_d2,wholly offsetting any crowding-out effect?

Question

-Refer to the above diagram.Initially assume that the investment demand curve is I<sub>d1</sub>.Which of the following effects of a budget deficit might shift the investment demand curve from I<sub>d1</sub> to I<sub>d2</sub>,wholly offsetting any crowding-out effect? A) an improvement in profit expectations by businesses B) a decrease in saving C) a decline in the interest rate D) an increase in the marginal propensity to consume

Quizplus · Accepted Answer

An improvement in profit expectations by businesses can increase investment demand, shifting the curve from Id1 to Id2, potentially offsetting the crowding-out effect of a budget deficit.

-Refer to the Above Diagram