Question

If the investment demand curve is vertical, a decrease in the interest rate will __________ investment, and therefore aggregate demand will __________.

Answer 1

Answer:

No effect, remain unchanged

Explanation:

The demand curve which is vertical, it means that the demanded quantity will remain the same, irrespective of the change in the price. In short, when price will increase, the quantity demanded will not be effected, whereas when price decrease then also the quantity demanded will not be effected or change.

So, if the demand curve of the investment is vertical, then the decrease in the rate of the interest will no effect the investment and the aggregate or total demand will also be remain unchanged as there is no effect on investment.