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    Question

    The investment function shows the relationship between

    investment and _____
    A Consumption Correct Answer Incorrect Answer
    B The interest rate Correct Answer Incorrect Answer
    C National income Correct Answer Incorrect Answer
    D Government spending Correct Answer Incorrect Answer
    E Employment Correct Answer Incorrect Answer

    Solution

    The investment function typically assumes that investment is negatively related to the interest rate. As interest rates fall, the cost of borrowing for investment projects decreases, making more projects profitable and increasing the level of investment.

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