If the interest rate increases, then the:
A) economy will move to a new point along the existing consumption function.
B) consumption function will shift upward.
C) investment demand curve will shift downward.
D) investment demand curve will shift upward.

Question

Quizplus · Accepted Answer

An increase in interest rates will make borrowing more expensive, which will reduce the incentive for businesses to invest. As a result, the investment demand curve will shift downward. The consumption function and other variables in the economy will not necessarily be affected by this specific change in interest rates.

If the Interest Rate Increases, Then The