Increases in the rate of interest
A) make it more profitable for firms to invest in new projects.
B) raise the expected rates of return on existing projects.
C) cause net investment to exceed gross investment.
D) raise the equilibrium levels of GDP.
E) tend to reduce the amount of investment.

Question

Quizplus · Accepted Answer

Increases in the rate of interest tend to reduce the amount of investment because higher interest rates increase the cost of borrowing, making it more expensive for firms to finance new projects or expansions. This reduction in investment can have a negative impact on economic growth and GDP.

Increases in the Rate of Interest