Suppose that at the current interest rate of 4%, gross investment is $2,500, government purchases...
Question:
Suppose that at the current interest rate of 4%, gross investment is $2,500, government purchases are $3,000, and net exports are $500.
a. Using a graph, draw the investment schedule (I), government purchases schedule (G), net exports schedule (NX), and the combined I + G + NX line for this economy.
b. Now suppose interest rates increase to 6%. As a result, gross investment falls to $1,500 while government purchases and net exports remain constant at $3,000 and $500, respectively. Using a graph, draw the new investment schedule (I), government purchases schedule (G), net exports schedule (NX), and the new combined I + G + NX line for this economy.
Investment:
The investment is a component of the aggregate demand function. The investment is also interest-sensitive; the investment decreases if the interest rate increases. Thus, the investment curve is downward sloping.
Answer and Explanation: 1
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The graph below shows the I, G, NX, and I + G + NX.
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b)
The graph below shows the I, G, NX, and I + G + NX.
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Investment Spending Types, Formula & Examples
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Chapter 24 / Lesson 16
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Learn to define what investment spending means in the context of economics. Discover the two types of investment spending and see examples of investment spending.
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