If interest rates increase, what is most likely to happen to the total expenditure schedule?
A)It will increase because G increases.
B)It will decrease because I decreases.
C)It will decrease because (X - IM) decreases.
D)It will increase because I increases.

Question

Quizplus · Accepted Answer

If interest rates increase, it becomes more expensive for businesses to borrow money to invest in capital goods, lowering investment (I). This leads to a decrease in total expenditure, as seen in the expenditure equation: GDP = C + I + G + (X - IM).

If Interest Rates Increase, What Is Most Likely to Happen