Final answer:
The investment spending function shifts to the left when the interest rate rises because it makes borrowing more expensive, reducing business investment. Similarly, worsened business expectations lower investment spending, shifting the function left.
Step-by-step explanation:
The function of investment spending shifts to the left when the interest rate rises. When interest rates increase, the cost of borrowing capital increases, making it more expensive for businesses to finance new investments. As a result, businesses are less likely to invest, and the investment function shifts to the left.
This can be seen in historical contexts such as during the 2008 and 2009 Great Recession, where the demand for financial capital at any given interest rate decreased. Conversely, when business expectations get worse, this too can cause the investment function to shift left, as businesses may anticipate lower rates of return on investments and thus cut back on spending.