An increase in the interest rate reduces the quantity of goods and services demanded. As a result:
A) the demand for domestic goods increases.
B) the demand for foreign goods declines.
C) the demand for residential and business investment goods increases.
D) the demand for residential and business investment goods declines.

Question

Quizplus · Accepted Answer

An increase in interest rates increases the cost of borrowing money, which makes residential and business investment less attractive. Therefore, the demand for residential and business investment goods declines.

An Increase in the Interest Rate Reduces the Quantity of Goods