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Calculating the Impact of an Interest Rate Change
An economy's investment behavior is described by the equation I = 250 - 50r, where I is aggregate investment in billions of dollars and r is the interest rate expressed as a percentage (e.g., an interest rate of 5% should be entered as 5). If the central bank raises the interest rate from 3% to 5%, what is the resulting change in aggregate investment? Show your calculation.
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Introduction to Macroeconomics Course
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The Economy 2.0 Macroeconomics @ CORE Econ
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Related
Consider an economy where the relationship between total investment (I) and the interest rate (r) is described by the equation: I = a₀ - a₁r. If businesses in this economy become significantly more sensitive to changes in the cost of borrowing, how would this be represented in the equation?
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