A lower interest rate makes more investment projects profitable, meaning that:
A) there is a direct relationship between the rate of interest and the quantity of investment spending.
B) there is an inverse relationship between the rate of interest and the quantity of investment spending.
C) there is no relationship between the rate of interest and the quantity of investment spending.
D) the demand curve for investment spending is horizontal.

Question

Quizplus · Accepted Answer

When interest rates are lower, businesses and individuals are more likely to borrow money to invest in projects since the cost of borrowing is lower. This leads to an increase in investment spending, indicating an inverse relationship between the rate of interest and the quantity of investment spending.

A Lower Interest Rate Makes More Investment Projects Profitable, Meaning