Which of the following is probably the most sensitive to changes in real interest rates?
A)Government purchases
B)Exports
C)Consumption
D)Imports
E)Investment

Question

Quizplus · Accepted Answer

Investment is probably the most sensitive to changes in real interest rates because investment decisions involve comparing costs and benefits over time. As real interest rates increase, the cost of borrowing money to invest increases, making investments relatively less attractive. Conversely, as real interest rates decrease, the cost of borrowing money to invest decreases, making investments relatively more attractive. Government purchases, exports, consumption, and imports are less sensitive to changes in real interest rates because they are not as directly tied to borrowing and lending.

Which of the Following Is Probably the Most Sensitive to Changes