Since business firms will undertake a project whose rate of return exceeds the present level of interest rates,when interest rates
A)rise planned investment rises,ceteris paribus.
B)fall planned investment falls,ceteris paribus.
C)rise planned investment does not change.
D)rise planned investment falls,ceteris paribus.

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing increases. This makes some projects that were previously profitable (when the rate of return exceeded the lower interest rates) no longer viable, as their returns do not cover the higher interest costs. Therefore, businesses are less likely to undertake new investments, leading to a fall in planned investment, ceteris paribus.

Since Business Firms Will Undertake a Project Whose Rate of Return