Planned investment spending is higher ________.
A) when real interest rate is higher
B) during financial frictions
C) when businesses are optimistic
D) A and C

Question

Quizplus · Accepted Answer

Businesses are more likely to invest when they are optimistic about the future of the economy and their own prospects. The real interest rate may affect investment decisions, but it is not the only or even the most important factor. Financial frictions, such as difficulty obtaining financing, may actually reduce investment spending. Therefore, options A and B are not correct.

Planned Investment Spending Is Higher ________