Practice Quiz

CLEP Microeconomics Exam Prep

Category - Microeconomics

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The figure shown depicts a shift in investment (Q0 to Q1) demand by consumers in response to a decrease in interest rates (r0 to r1). What does this shift indicate about consumers’ business confidence?
  1. Insufficient information available
  2. No change in business confidence
  3. Decrease in business confidence
  4. Increase in business confidence
Explanation
Answer - D - The shift in investment indicates an increase in business confidence.

Key Takeaway: In an investment demand curve, interest rates are plotted against investment. In this curve, a decrease in interest rates is accompanied by an increase in consumer investment. This increase in consumer investment reflects an increase in business confidence.
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