In which of the following situations does investment spending decrease?
A)when the price level rises, causing interest rates to rise
B)when the price level rises, causing interest rates to fall
C)when the price level falls, causing interest rates to rise
D)when the price level falls, causing interest rates to fall

Question

Quizplus · Accepted Answer

When the price level rises, interest rates also rise. This makes borrowing more expensive and reduces the incentive for firms to invest. Therefore, investment spending decreases.

In Which of the Following Situations Does Investment Spending Decrease