A very famous and high profle economist recently blogged the following.

The law of demand is one of the sacrosanct principles of economics: If the price of apples goes up, the demand for apples wil go down. Yet when real interest rates go up, it is not obvious that the demand to invest goes down,.

This raises a profound question: If the law of demand doesn't apply, how well do we understand investment and real interest rates at all?

• Consider what is in italics, is that a statement about the law of demandUsing our supply and demand model of interest rate determination, draw a case where interest rates increase and the level of investment in capital also increases.
• Using our supply and demand model of interest rate determination, draw a case where interest rates increase and the level of investment in capital decreases.
• Based on (b) and (c), should we be surprised that "when real interest rates go up, it is not obvious that the demand to invest goes down"?
• Can you guess if this person is a macro or micro economist? Why?