Which of the following events could explain an increase in interest rates together with a decrease in investment?
A)The government budget went from surplus to deficit.
B)The government instituted an investment tax credit.
C)The government reduced the tax rate on savings.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

If the government budget goes from surplus to deficit, it is likely that the government will increase borrowing to finance the deficit, leading to an increase in interest rates. At the same time, investors may become less willing to invest due to concerns about the government's ability to repay its debt, resulting in a decrease in investment. Options B and C would both tend to stimulate investment rather than decrease it. Option D is incorrect as there must be some logical explanation for the increase in interest rates and decrease in investments.

Which of the Following Events Could Explain an Increase in Interest