When the Federal Reserve increases interest rates, investment spending ________ and GDP ________.
A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases

Question

Quizplus · Accepted Answer

When the Federal Reserve increases interest rates, it becomes more expensive for businesses and individuals to borrow money, causing investment spending to decrease. This decrease in investment spending can lead to a decrease in GDP. Therefore, the correct choice is C, where both investment spending and GDP decrease.

When the Federal Reserve Increases Interest Rates, Investment Spending ________