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Question 1 of 3

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You must read each slide, and complete any questions on the slide, in sequence.

Consider the following graph, which depicts the relationship between a country’s income (Y) and its level of investment (I).

The graph depicts a straight horizontal line. The horizontal axis is labeled Y, or income, and the vertical axis is labeled I, or investment.

Here, investment and income have a(n) relationship because as Income increases, Investment .

Here, investment depends on other factors, including investor confidence and interest rates. The horizontal line is indicative of an independent relationship.
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The graph depicts a straight horizontal line. The horizontal axis is labeled Y, or income, and the vertical axis is labeled I, or investment.

Suppose that businesses become less confident about the country’s future. In this case, the investment curve .

Reduced expected income makes investors less willing to commit to long-term spending. This reduces investment.
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The graph depicts a straight horizontal line. The horizontal axis is labeled Y, or income, and the vertical axis is labeled I, or investment.

Suppose that capital suddenly becomes more productive. In this case, the investment curve .

Higher productivity means capital is a better investment. Investors want to purchase more of this capital; this increases investment.
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