Question

The investment function in the two-sector model is \[I = \overline{I}\]. Graphically, this is represented as:

Options

• A horizontal line at height \(\overline{I}\) above the horizontal axis

• A vertical line at income level \(\overline{I}\)

• An upward-sloping 45° line from the origin

• A downward-sloping straight line with slope c

Answer 1

Since investment is autonomous, \[I = \overline{I}\] remains the same at all income levels. Graphically, this appears as a horizontal line at height \(\overline{I}\) above the horizontal axis, showing that investment does not change as income changes.