CFA Practice Question

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CFA Practice Question

If other factors are equal, a rise in interest rates can be expected to ______

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..
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