When the interest rate in the United States increases as a result of contractionary monetary policy, investment spending _____ and consumption _____ .

Question

Quizplus · Accepted Answer

When interest rates increase due to contractionary monetary policy, investment spending typically decreases because it becomes more expensive for businesses to borrow money to invest in their operations. Consumption also typically decreases because individuals and households may have less disposable income to spend due to higher interest rates on loans and credit cards.

When the Interest Rate in the United States Increases as a Result