Question

Which of the following statements about investment spending is​ correct?

A.
The optimism or pessimism of firms is an important determinant of investment spending.
Your answer is not correct.
B.
A higher real interest rate results in less investment spending.
C.
When the economy moves into a​ recession, many firms will postpone buying investment goods even if the demand for their own product is strong.
D.
All of the above are correct.

Answer 1

A higher real interest rate results in less investment spending.

Step-by-step explanation:

The correct statement about investment spending is B. A higher real interest rate results in less investment spending. Interest rates play a significant role in determining how much investment a firm will make. Higher interest rates increase the cost of investment and reduce the incentive for businesses to invest in capital. On the other hand, lower interest rates stimulate investment spending as they reduce the cost of borrowing money for businesses.