Which one of the following statements is TRUE?
A) The investment function is positively sloped to reflect the fact that higher interest rates cause more people to invest their funds.
B) The investment function is positively sloped to reflect the fact that lower interest rates cause more firms to expand their operations.
C) Along a given investment function, higher interest rates result in more investment projects being undertaken.
D) Along a given investment function, lower interest rates result in more investment projects being undertaken.

Question

Quizplus · Accepted Answer

Along a given investment function, lower interest rates result in more investment projects being undertaken. This is because lower interest rates reduce the cost of borrowing and make investment projects more profitable. As a result, firms are more likely to undertake new investment projects when interest rates are low. Option A and B are incorrect because they have reversed the relationship between interest rates and investment. Option C is incorrect because it assumes that the investment function shifts when interest rates change, which is not necessarily the case.

Which One of the Following Statements Is TRUE