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Chapter 18: Problem 8

The investment demand curve represents the relationship between business spending for investment goods and a. GDP. b. interest rates. c. disposable income. d. saving.

Short Answer

Expert verified
The investment demand curve represents the relationship between business spending for investment goods and \(b. \text{interest rates}\).

Step by step solution

01

Define the Investment Demand Curve

The investment demand curve shows the relationship between the level of investment spending by businesses and the overall real interest rate in an economy. It is a downward-sloping curve, indicating that businesses are more likely to invest when interest rates are low and vice versa.
02

Evaluate the Options

Based on the definition of the investment demand curve, we can now evaluate the given options: a. GDP: The investment demand curve does not directly represent the relationship between investment goods and GDP. b. Interest rates: The investment demand curve represents the relationship between investment goods and real interest rates. c. Disposable income: The investment demand curve does not represent the relationship between investment goods and disposable income. d. Saving: The investment demand curve does not directly represent the relationship between investment goods and saving.
03

Choose the Correct Answer

Out of the given options, we can determine that the investment demand curve represents the relationship between business spending for investment goods and real interest rates. Therefore, the correct answer is option (b) "interest rates".

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Most popular questions from this chapter

An upward shift in the consumption schedule, other things being equal, could be caused by households a. becoming optimistic about the state of the economy. b. becoming pessimistic about the state of the economy. c. expecting future income and wealth to decline. d. doing none of the above.

The consumption function represents the relationship between consumer expenditures and a. interest rates. b. saving. c. the price level. d. disposable income.

Autonomous consumption is a. positively related to the level of consumption. b. negatively related to the level of consumption. c. positively related to the level of disposable income. d. independent of the level of disposable income.

Above the break-even disposable income for the consumption function, which of the following occurs? a. Dissaving b. Saving c. Neither (a) nor (b) d. Both (a) and (b)

Which of the following changes produces an upward shift in the consumption function? a. An increase in consumer wealth b. A decrease in consumer wealth c. A decrease in autonomous consumption d. Both (b) and (c)
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