In which situation does investment spending decrease?
A) when the price level rises, causing interest rates to rise
B) when the price level rises, causing interest rates to fall
C) when the price level falls, causing interest rates to rise
D) when the price level falls, causing interest rates to fall

Question

Quizplus · Accepted Answer

When the price level rises, interest rates rise as well. Higher interest rates mean that it's more expensive for businesses to borrow money to invest in capital goods, and so they are less likely to do so. Therefore, investment spending decreases.

In Which Situation Does Investment Spending Decrease