Would the investment demand curve shift right or left:
(a) New wireless technology enhances the use of all sorts of electronic equipment, making such equipment more flexible and productive.
(b) Federal and state governments, responding to near-record levels of budget deficits, decide to increase taxes on businesses.
(c) The Fed pursues an expansionary monetary policy that drops interest rates from 12% to 8%.
Take a shot, what do you think?
Hint: just use common sense, would the event cause investors to increase or decrease their investment.
right
To determine whether the investment demand curve would shift right or left in each scenario, we need to understand the factors that influence investment demand. The investment demand curve shows the relationship between the interest rate and the level of investment spending in an economy.
(a) New wireless technology enhances the use of all sorts of electronic equipment, making such equipment more flexible and productive.
In this case, the advancement in wireless technology increases the productivity and efficiency of electronic equipment. This improvement in technology is likely to create a positive impact on business activity and growth, leading to an increase in investment demand. Thus, the investment demand curve would shift right.
(b) Federal and state governments, responding to near-record levels of budget deficits, decide to increase taxes on businesses.
When governments increase taxes on businesses, it reduces the after-tax profits available for investment. This decrease in profitability can discourage businesses from investing, which would lead to a decrease in investment demand. Consequently, the investment demand curve would shift left.
(c) The Fed pursues an expansionary monetary policy that drops interest rates from 12% to 8%.
When the central bank, in this case, the Fed, implements an expansionary monetary policy and lowers interest rates, it aims to stimulate economic activity and investment. Lower interest rates reduce the cost of borrowing, making investment more attractive. As a result, businesses are likely to increase their investment spending, leading to an increase in investment demand. Therefore, the investment demand curve would shift right.
In summary:
(a) The investment demand curve would shift right.
(b) The investment demand curve would shift left.
(c) The investment demand curve would shift right.