Which of the following explains why small reductions in interest rates may not lead to an increase in investment spending?
A)Excess capacity gives businesses little incentive to expand production capacity.
B)Investment demand is elastic with respect to the interest rate.
C)Improved expectations shift the investment demand curve to the right.

Question

Quizplus · Accepted Answer

If businesses already have excess capacity, they may not see a need to expand their production capacity even if interest rates decrease. This means that investment spending may not increase despite the decrease in interest rates.

Which of the Following Explains Why Small Reductions in Interest