Refer to the graph above. Which of the following would shift the investment demand curve from ID₂ to ID₃? A) A lower real interest rate B) Rising maintenance costs of investment goods C) Increasing business taxes D) Falling stock of capital resources while output is high

Question

Quizplus · Accepted Answer

A falling stock of capital resources while output is high would signal firms to increase investment in order to replace the depleted capital. This would shift the investment demand curve to the right, from ID₂ to ID₃. A lower real interest rate would also encourage investment, but this is already reflected in the existing curve. Rising maintenance costs of investment goods and increasing business taxes would have the opposite effect of discouraging investment and shifting the curve to the left.

Refer to the Graph Above