What type of relationship does the real interest rate have with respect to Investment spending?
A) negative relationship
B) positive relationship
C) No relationship
D) constant relationship

Question

Quizplus · Accepted Answer

There is a negative relationship between the real interest rate and investment spending. When the real interest rate (adjusted for inflation) is high, it becomes more expensive for businesses to borrow money to finance new investments. This leads to a decrease in investment spending. Conversely, when the real interest rate is low, it becomes cheaper for businesses to borrow money and thus leads to an increase in investment spending.

What Type of Relationship Does the Real Interest Rate Have