Calculate the ratio of real investment expenditures to GDP, quarterly, for the period 1947–2015, and calculate the real interest rate as a three-month Treasury bill rate minus the inflation rate (be careful that you calculate the inflation rate as an annualized rate), then plot both of these variables as time series (you might want to be inventive about how you scale these variables). The theory of investment in this chapter predicts an optimal investment schedule that is a negative relationship between the investment and the real interest rate. Is this what you observe in the data? Explain.

Answer these questions using the Federal Reserve Bank of St. Louis’s FRED database, accessible at http://research.stlouisfed.org/fred2/