The function showing total spending on investment would be shifted inward and to the left by:
A) a technological innovation that increases the production function parameter A.
B) any event that raises the marginal product of capital.
C) any event that raises the purchase price of capital.
D) an accident that destroyed one-quarter of the U.S. capital stock while leaving the labor supply intact.

Question

Quizplus · Accepted Answer

An increase in the purchase price of capital makes investment more expensive, thereby reducing the amount of investment undertaken at any given rate of interest. This would shift the investment function inward and to the left.

The Function Showing Total Spending on Investment Would Be Shifted