If the rate of interest increases,firms will most likely respond by:

Question

Quizplus · Accepted Answer

When the rate of interest increases, firms are likely to respond by decreasing investment due to higher borrowing costs. This is because borrowing becomes more costly, which can lead to reduced profitability and investment returns. Additionally, higher interest rates can also reduce the demand for the firm's products and services, further reducing the incentive to invest. Therefore, decreasing investment is the most likely response by firms when interest rates increase.

If the Rate of Interest Increases,firms Will Most Likely Respond