A decrease in the interest rate results in
A) a smaller opportunity cost of investment and so planned investment spending increases.
B) a smaller opportunity cost of investment and so planned investment spending decreases.
C) a greater opportunity cost of investment and so planned investment spending decreases.
D) a greater opportunity cost of investment and so planned investment spending increases.

Question

Quizplus · Accepted Answer

Lower interest rates make borrowing cheaper and increase the reward for borrowing and investing, making investment spending more attractive. Thus, a decrease in interest rates leads to a smaller opportunity cost of investment, which leads to an increase in planned investment spending.

A Decrease in the Interest Rate Results in