Figure 19.5 shows a steep investment demand curve. If the real rate of interest falls from r1 to r2, there is only a small rise in investment from I1
Figure 19.5 shows a steep investment demand curve. If the real rate of interest falls from r1 to r2, there is only a small rise in investment from I1 to I2. Now draw a much more elastic I curve passing through point a. Assume that this is the true I curve. Show how the rate of interest could still fall to r2 and investment still only rise to I2 if this curve were to shift.