Real interest rates and investment are
A)negatively correlated because higher real interest rates make it easier for the firm to borrow funds.
B)negatively correlated because higher real interest rates will increase the firm's profits.
C)positively correlated because higher real interest rates make it easier for the firm to borrow funds.
D)negatively correlated because higher real interest rates make borrowing by firms more costly.
E)positively correlated because higher real interest rates make borrowing by firms less costly.

Question

Quizplus · Accepted Answer

Higher real interest rates make borrowing by firms more costly, which reduces investment spending, leading to a negative correlation between real interest rates and investment.

Real Interest Rates and Investment Are