Question

How is the investment function \[I=f(r)\] represented when the rate of interest rises?

Options

• Downward-sloping — higher interest means less investment

• Net investment is zero

• Horizontal straight line parallel to the X-axis

• Upward-sloping line from left to right

Answer 1

The investment function is downward-sloping with respect to the rate of interest. Higher interest makes investment less attractive, so investment decreases.