An increase in interest rates
A)decreases investment spending on machinery,equipment,and factories,but increases consumption spending on durable goods and net exports.
B)decreases investment spending on machinery,equipment,and factories,and consumption spending on durable goods,but increases net exports.
C)decreases investment spending on machinery,equipment,and factories,consumption spending on durable goods,and net exports.
D)increases investment spending on machinery,equipment,and factories,consumption spending on durable goods,and net exports.

Question

Quizplus · Accepted Answer

An increase in interest rates makes borrowing more expensive, which discourages investment in machinery, equipment, and factories due to higher financing costs. It also discourages consumption of durable goods, which are often financed through loans. Higher interest rates can strengthen the domestic currency, making exports more expensive and imports cheaper, thus decreasing net exports.

An Increase in Interest Rates