Final answer:
If the real interest rate increases, the investment demand curve will shift to the left, indicating a decrease in investment. This leftward shift in the investment demand curve can lead to a potential recession if GDP falls below potential GDP. Option b.
Step-by-step explanation:
If the real interest rate increases, there will actually be a shift in the investment demand curve. According to economic principles, when interest rates are higher, the cost of borrowing funds for investment increases. This typically leads to a decrease in investment spending as it becomes more expensive for businesses to finance investments. Therefore, rather than shifting to the right, the investment demand curve will shift to the left. This shift to the left signifies a decrease in investment at every level of interest rate, which can slow down economic growth and potentially lead to a recession if it causes the actual Gross Domestic Product (GDP) to fall below potential GDP. A leftward shift in the aggregate demand (AD) curve is reflective of this reduction in investment spending, among other components of economic activity. Option b.