If the rate of interest increases, firms will most likely respond by
A)increasing investment.
B)decreasing investment.
C)not changing investment.
D)increasing capital stock.

Question

Quizplus · Accepted Answer

When the rate of interest increases, it becomes more expensive for firms to borrow money to fund investments. As a result, firms may reduce investment to avoid increasing their debt burden.

If the Rate of Interest Increases, Firms Will Most Likely