An increase in the interest rate causes a decrease in investment by shifting the loanable funds demand curve to the left.

Question

Quizplus · Accepted Answer

An increase in the interest rate actually decreases investment by making borrowing more expensive, but it does not shift the demand curve for loanable funds to the left. Instead, it moves along the demand curve, leading to a lower quantity of loanable funds being demanded.

An Increase in the Interest Rate Causes a Decrease in Investment