Which one of the following statements is true?
A) The investment function is positively sloped to reflect the fact that higher interest rates cause more people to invest their funds.
B) The investment function is positively sloped to reflect the fact that lower interest rates cause more firms to expand their operations.
C) Along a given investment function, higher interest rates result in more investment projects being undertaken.
D) Along a given investment function, higher interest rates result in fewer investment projects being undertaken.

Question

Quizplus · Accepted Answer

The investment function is negatively sloped, meaning that as interest rates increase, fewer investment projects are undertaken. This is because higher interest rates increase the cost of borrowing, making it less attractive for firms to invest in new projects. On the other hand, lower interest rates make borrowing cheaper, which encourages firms to undertake more investment projects.

Which One of the Following Statements Is True