When the interest rate in the U.S. increases as a result of contractionary monetary policy, investment spending _____ and consumption _____ .

Question

Quizplus · Accepted Answer

When interest rates increase due to contractionary monetary policy, investment spending decreases because it becomes more expensive for businesses to borrow money to invest in projects. Consumption also decreases because higher interest rates make it more expensive for consumers to borrow for large purchases like homes and cars, reducing their willingness to spend.

When the Interest Rate in the U