When interest rates increase,
A)government purchases will increase to offset the decline in consumption, investment, and net exports.
B)expenditures may increase or decrease.
C)investment will increase.
D)expenditures increase.
E)expenditures decrease.

Question

Quizplus · Accepted Answer

When interest rates increase, borrowing becomes more expensive, and as a result, expenditures on consumption, investment, and net exports tend to decrease. Therefore, the correct answer is E, expenditures decrease.

When Interest Rates Increase