What happens as interest rates fall?
A)The number of profitable investment opportunities declines.
B)The opportunity cost of using retained earnings to finance investment spending declines.
C)Planned investment spending also falls.
D)Planned investment spending remains constant since it depends on profit projections not interest rates.

Question

Quizplus · Accepted Answer

As interest rates fall, the opportunity cost of using retained earnings to finance investment spending declines. This is because the cost of borrowing money decreases, making it more attractive to invest rather than saving the money. The other options are incorrect as a fall in interest rates typically leads to an increase in profitable investment opportunities and planned investment spending.

What Happens as Interest Rates Fall