When interest rates are high due to a reduction in saving, business firms are likely to:
A) increase investments in capital due to high interest rate returns.
B) reduce investments in capital due to high borrowing costs.
C) expand operations due to the high return on savings.
D) contract operations due to low return on savings.

Question

Quizplus · Accepted Answer

When interest rates are high, the cost of borrowing money increases. This makes it more expensive for business firms to finance new investments in capital, leading them to reduce such investments.

When Interest Rates Are High Due to a Reduction in Saving