What causes investments to increase when the production in the economy is below full employment?
A) When the economy is below full employment, the price level drops, resulting in a decrease in the demand for money and a decrease in interest rates.
B) When the economy is below full employment, the price level rises, resulting in an increase in the demand for money and a decrease in interest rates.
C) When the economy is below full employment, the price level drops, resulting in an increase in the demand for money and an increase in interest rates.
D) When the economy is below full employment, the price level drops, resulting in a decrease in the demand for money and an increase in interest rates.

Question

Quizplus · Accepted Answer

When the economy is below full employment, there is less demand for goods and services, resulting in a decrease in the price level. As a result, people hold onto less money and are more willing to invest in businesses or stocks, which leads to an increase in investments. Lower interest rates also make it cheaper for businesses to borrow money, which encourages more investment. Therefore, when the demand for money decreases (as in choice A), it can lead to an increase in investments.

What Causes Investments to Increase When the Production in the Economy