Final answer:
B. expand investment and shift the AD curve to the right.
A decrease in the real interest rate will expand investment and shift the AD curve to the right, as lower borrowing costs encourage businesses to invest more.
Step-by-step explanation:
The student asks about the effect of a change in the real interest rate on investment and the aggregate demand (AD) curve. Other things being equal, a decrease in the real interest rate will expand investment and shift the AD curve to the right. This is because lower interest rates make borrowing cheaper for businesses, which typically leads to increased investment in capital goods. As a result, the aggregate demand rises because investment is a component of AD. This increased demand can lead to higher overall income and potentially cause inflation if the economy exceeds potential GDP.