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Shifts in Autonomous Investment
Suppose the aggregate investment in an economy is initially described by the function I = 1000 - 50r, where I is total investment in billions of dollars and r is the interest rate in percent. A major technological breakthrough significantly boosts business confidence, causing firms to increase their planned investment by $200 billion at every interest rate level. What is the new aggregate investment function?
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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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Shifts in Autonomous Investment