If the interest rate rises, then firms' investment spending:
A) falls.
B) also rises.
C) remains unchanged
D) reacts unpredictably.

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing money increases. This makes it more expensive for firms to finance investment projects, leading to a reduction in investment spending. Thus, firms' investment spending falls when interest rates rise.

If the Interest Rate Rises, Then Firms' Investment Spending