If We Observe That Interest Rates Rise but Real Investment

question 39

Multiple Choice

If we observe that interest rates rise but real investment spending still increases, what must have happened to the function relating investment to the interest rate?

• A) It shifted to the right.
• B) It shifted to the left.
• C) There was a movement up the function relating investment to the interest rate.
• D) There was a movement down the function relating investment to the interest rate.

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Definitions:

System II Thinking

A cognitive process that involves analytical, effortful, and logical thinking as opposed to quick, instinctual, and often biased System I thinking.

System I Thinking

A term from dual-process theory referring to fast, automatic, emotional, and subconscious thought processes.

Utility Theory

A theory in economics and finance that describes how individuals choose among different options or actions based on their expected happiness or satisfaction.

Framing

The way a decision is phrased or the way options are described. Seemingly peripheral aspects of the framing can influence decisions by changing the point of reference.