During the Great Recession of 2007-2009, the investment demand curve shifted:
A) Left because of very low interest rates
B) Right because of very low interest rates
C) Left because of declines in expected returns
D) Right because of reductions in tax rates

Question

Quizplus · Accepted Answer

During the Great Recession, there was a decline in expected returns due to economic uncertainty and decreased confidence in the financial markets, which led to a leftward shift in the investment demand curve. Low interest rates may have encouraged more borrowing for investment, but ultimately it was the decline in expected returns that had the biggest impact on investment demand. Reductions in tax rates may have had some effect on investment demand, but it is not as significant as the decline in expected returns. Therefore, option C is the best answer.

During the Great Recession of 2007-2009, the Investment Demand Curve