Final answer:
Tight or contractionary monetary policy decreases business investment but increases consumer borrowing for big-ticket items. Option d is correct.
Step-by-step explanation:
Tight or contractionary monetary policy, which leads to higher interest rates and a reduced quantity of loanable funds, has a negative impact on business investment and consumer borrowing for big-ticket items. With higher interest rates, it becomes less attractive for firms to borrow money for investment and they may prefer to put their funds in financial investments.
When a contractionary monetary policy is enacted, the effects on business investment and consumer borrowing can be significant. The primary tool at work here is the adjustment of interest rates. As rates go up, the cost of borrowing increases for both businesses and consumers. Consequently, businesses may find it less attractive to finance expansions and capital investments through loans, as the higher interest payments will affect their profitability. These conditions make it more favorable for businesses to invest excess funds in financial markets rather than in physical assets. Moreover, higher interest rates discourage consumers from borrowing money for big-ticket items like houses and cars. Therefore, the correct answer is d) Decreases business investment but increases consumer borrowing.