An increase in the rate of interest, other things being equal, will cause a(n):
A) downward shift in the investment demand curve.
B) movement downward along the investment demand curve.
C) movement upward along the investment demand curve.
D) upward shift in the investment demand curve.

Question

Quizplus · Accepted Answer

An increase in the interest rate, holding other factors constant, makes borrowing more expensive for businesses. This typically reduces the quantity of investment businesses are willing to undertake at each price level, leading to a movement upward along the investment demand curve as it reflects a decrease in the quantity of investment demanded at the higher interest rate.

An Increase in the Rate of Interest, Other Things Being