Question

1. the investment demand curve

the following table shows the expected rate of profit and the cumulative amount of investment with that rate of profit or higher in a hypothetical economy. for example, $100 billion worth of investment projects have an expected rate of profit that is greater than or equal to 11%. put another way, at an interest rate of 11%, the amount of investment demanded equals $100 billion.

using the blue points (circle symbol), plot the hypothetical economys investment demand curve (i) on the graph. line segments will automatically connect the points.

determine how each of the following events will shift the investment demand (i) curve.

Explanation:

• Event 1: When business taxes increase, firms' after - tax profits decrease. This reduces the incentive for firms to invest. As a result, at each interest rate, the amount of investment demanded is lower. A left - ward shift of the investment demand curve represents a decrease in investment demand at every interest rate.
• Event 2: If firms have excess inventories of finished goods and are overstocked with production facilities, they will have less need to invest in new capital (such as new factories or equipment). This leads to a decrease in investment demand at each interest rate, which is shown by a left - ward shift of the investment demand curve.

Answer:

1. Left
2. Left