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    Question

    When the expected future marginal product of capital increases, then the IS curve

    A shifts up and to the right Correct Answer Incorrect Answer
    B shifts down and to the left Correct Answer Incorrect Answer
    C becomes steeper Correct Answer Incorrect Answer
    D becomes flatter Correct Answer Incorrect Answer

    Solution

    When the expected future marginal product of capital increases, it implies that businesses expect higher returns on their investments in capital. This increase in expected returns leads to higher levels of investment at any given interest rate. Consequently, the IS curve, which represents the relationship between the interest rate and the level of output where the goods market is in equilibrium, will shift to reflect this increased investment.

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