Answer to Question #157870 in Macroeconomics for Nthabiseng

Question

1.7 In the simple Keynesian model, the following is true about investment. A) As income increases, investment also increases.

B) There is a negative relationship between investment and income.

C) Investment is autonomous and is illustrated by a horizontal line.

D) Investment is positively related to the interest rate.

Answer 1

D)investment is positively related to the interest rate.

Higher interest rates reduce investment, because higher rates increase the cost of borrowing and require investment to have a higher rate of return to be profitable.