If we observe that interest rates rise but real investment spending still increases, what must have happened to the function relating investment to the interest rate?
A) It shifted to the right.
B) It shifted to the left.
C) There was a movement up the function relating investment to the interest rate.
D) There was a movement down the function relating investment to the interest rate.

Question

Quizplus · Accepted Answer

When real investment spending increases despite a rise in interest rates, it indicates that the function relating investment to the interest rate has shifted to the right. This shift suggests that at any given interest rate, more investment is occurring than before, possibly due to increased optimism about future profitability, technological advancements, or other factors that enhance investment prospects.

If We Observe That Interest Rates Rise but Real Investment