Business fixed investment, residential investment, and inventory investment ______ as the real interest rate increases and ______ as output increases.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

Business fixed investment, residential investment, and inventory investment decrease as the real interest rate increases because it becomes more expensive for businesses to borrow money to fund these investments. However, they increase as output increases because businesses need to invest more in order to meet higher demand for their products and services.

Business Fixed Investment, Residential Investment, and Inventory Investment ______ as the Real