The notion of business investment being related to interest rates is shown when interest rates are
A)higher, more projects (where businesses borrow capital to start new lines of business)are profitable.
B)higher, fewer projects (where businesses borrow capital to start new lines of business)are profitable.
C)higher, people are less likely to buy expensive goods on installments.
D)higher, people are more likely to buy expensive goods on installments.

Question

Quizplus · Accepted Answer

When interest rates are higher, it means that borrowing money becomes more expensive for businesses. This makes it more difficult for them to fund new projects or expand their current operations, as the cost of borrowing outweighs the potential return on investment. Therefore, fewer projects are likely to be profitable in such a scenario. Conversely, when interest rates are lower, borrowing becomes cheaper, making it easier for businesses to finance new ventures and expand their operations, thus increasing the likelihood of profitable projects.

The Notion of Business Investment Being Related to Interest Rates