If interest rates increase, business investment expenditures are likely to ______, and consumer durable expenditures are likely to _________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) be unaffected; be unaffected

Question

Quizplus · Accepted Answer

When interest rates increase, the cost of borrowing money rises for both businesses and consumers. This typically leads to a decrease in business investment expenditures as financing new projects or expansions becomes more expensive. Similarly, consumer durable expenditures, which often involve financing large purchases, are likely to decrease as the cost of loans (e.g., for cars, appliances) increases.

If Interest Rates Increase, Business Investment Expenditures Are Likely to ______