As the interest rate increases

Question

Quizplus · Accepted Answer

As the interest rate increases, the cost of borrowing for investment purposes also increases. This typically leads to a decrease in planned investment because firms are less likely to take on new projects or expand when it is more expensive to borrow money. As planned investment is a component of aggregate expenditure (which includes consumption, investment, government spending, and net exports), a decrease in investment leads to a decrease in aggregate expenditure.

As the Interest Rate Increases