- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 2. Monetary Policy Tools and Monetary Transmission
CFA Practice Question
If other factors are equal, a rise in interest rates can be expected to ______
B. decrease the quantity of investment.
C. have no effect upon the quantity of investment.
A. increase equilibrium income.
B. decrease the quantity of investment.
C. have no effect upon the quantity of investment.
Correct Answer: B
Higher interest rates increase the cost of borrowing, making it more expensive for businesses to borrow to finance new investment projects.
User Contributed Comments 6
| User | Comment |
|---|---|
| Done | Wouldn't increase the amount of foreign investment or FDI(foreign direct investment)? |
| thekapila | Remember..Investment is different from savings. |
| steved333 | in econ, investment= buying real assets, lie plants and trucks and such. You will do that less when it costs more to do so. |
| mwali | very good explanation.I would have thought otherwise |
| rfvo | "increase equilibrium income" could be correct, higher interset rates lead to higher income |
| ilgibe | to rfvo: if you're talking about nominal income, yes.. |