The investment function reflects a negative relationship between the quantity of investment and the interest rate because
A) high interest rates make the borrowing that some require to finance investment too expensive relative to the potential return.
B) high interest rates make the opportunity cost of foregoing an interest rate return on funds in lieu of financing an investment too high.
C) low interest rates mean that more investment projects are available that pay the superior returns financiers are looking for.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

The investment function shows a negative relationship with the interest rate because high interest rates increase the cost of borrowing and the opportunity cost of investing, making fewer investment projects financially viable. This is captured in all the given reasons (A, B, and C), which together explain why investment tends to decrease as interest rates increase.

The Investment Function Reflects a Negative Relationship Between the Quantity