Changes in interest rates have a large effect on business investment but virtually no effect on consumption by the public.

Question

Quizplus · Accepted Answer

Changes in interest rates can affect both business investment and public consumption. Higher interest rates can make borrowing more expensive, which may reduce investment by businesses and decrease consumption by the public as loans for homes, cars, and credit card purchases become more costly. Conversely, lower interest rates can encourage both higher investment by businesses and increased consumption by the public.

Changes in Interest Rates Have a Large Effect on Business