Consider desired investment in the simple macro model.Other things being equal,higher real interest rates tend to
A)reduce every component of desired investment expenditure except residential housing.
B)reduce every component of desired investment expenditure except inventories.
C)reduce every component of desired investment expenditure except plant and equipment.
D)increase every component of desired investment expenditure.
E)reduce every component of desired investment expenditure.

Question

Quizplus · Accepted Answer

Higher real interest rates increase the cost of borrowing, which generally reduces the incentive for firms to invest in various components such as plant, equipment, residential housing, and inventories. Therefore, higher real interest rates tend to reduce every component of desired investment expenditure.

Consider Desired Investment in the Simple Macro Model