If businesses expect the economic activity to expand
A) the planned investment function relating investment to the interest rate will shift to the left.
B) the planned investment function relating investment to the interest rate will remain unchanged, but will move downward along the curve.
C) the planned investment function relating investment to the interest rate will steepen.
D) the planned investment function relating investment to the interest rate will shift to the right.

Question

Quizplus · Accepted Answer

If businesses expect the economic activity to expand, they will likely increase their investment plans. This means that the planned investment function relating investment to the interest rate will shift to the right, as at each interest rate, more investment will be planned. Therefore, the correct option is D.

If Businesses Expect the Economic Activity to Expand