Investment spending ________.
A)is comprised of fixed and inventory investment
B)is negatively related to the real interest rate
C)is heavily influenced by what Keynes coined as "animal spirits"
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Investment spending is comprised of fixed investment (such as buildings, equipment, and machinery) and inventory investment (the addition of goods to inventories). It is negatively related to the real interest rate because higher interest rates increase the cost of borrowing and, therefore, discourage investment. Additionally, Keynes argued that investment spending is heavily influenced by "animal spirits," or the psychological factors that drive business decisions, such as optimism, confidence, and fear. Therefore, all three options are correct, making D the best choice.

Investment Spending ________