An increase in the interest rate,other things equal,would
A)have no effect on investment
B)increase the amount invested since the rate of return would be lower
C)increase the amount invested because income would rise
D)reduce the amount invested because the opportunity costs of investing would be higher
E)increase the amount invested because the rate of return would be higher

Question

Quizplus · Accepted Answer

An increase in the interest rate would make the opportunity cost of investing higher, because it would mean there is a higher return available for simply saving money in a bank account or buying bonds. Therefore, investors would be less likely to invest and more likely to save, which would reduce the amount invested.

An Increase in the Interest Rate,other Things Equal,would