During the Great Recession of 2007-2009, real interest rates:
A) Declined to about zero, and investments increased sharply
B) Declined to about zero, and investments also declined sharply
C) Increased sharply, and investments declined significantly
D) Increased sharply, and investments also rose significantly

Question

Quizplus · Accepted Answer

During the Great Recession, real interest rates declined to about zero, but investments also declined sharply. This was because investors became risk-averse and preferred to hold cash or safer assets, rather than investing in riskier assets such as stocks or corporate bonds. As a result, demand for investment declined, and prices of these assets fell, leading to a sharp decline in investment.

During the Great Recession of 2007-2009, Real Interest Rates