If the interest rate falls:
A) Savings will rise and investment will rise.
B) Savings will fall and investment will fall.
C) Savings will rise and investment will fall.
D) Savings will fall and investment will rise.

Question

Quizplus · Accepted Answer

When the interest rate falls, the cost of borrowing money decreases, and it becomes more attractive for businesses to invest in new projects or expand existing ones. Therefore, investment will rise. On the other hand, with lower interest rates, the returns on saving accounts or other fixed-income investments decrease, which makes saving less attractive. Hence, savings will fall.

If the Interest Rate Falls