Question: Is investment sensitive to the real interest rate? Plot since 1990 a measure of the real interest rate based on the difference between Moodys Baa

Is investment sensitive to the real interest rate? Plot since 1990 a measure of the real interest rate based on the difference between Moody’s Baa corporate rate (FRED code: BAA) and a survey of expected inflation (FRED code: MICH) – and (on the right scale) the share of investment (FRED code: GPDIC1) in real GDP (FRED code: GDPC1). Explain the cyclical pattern.

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