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Which of the following statements is true regarding interest rates and quantity of investment demanded?

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a) Higher interest rates lead to increased investment demand.
b) Lower interest rates lead to increased investment demand.
c) Interest rates have no effect on investment demand.
d) Investment demand is inversely related to interest rates.

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Final answer:

The statement that is true regarding interest rates and the quantity of investment demanded is investment demand is inversely related to interest rates.

Step-by-step explanation:

The statement that is true regarding interest rates and the quantity of investment demanded is d) Investment demand is inversely related to interest rates. According to the interest rate effect, when interest rates are higher, borrowing for investment purposes becomes less attractive for businesses, leading to a reduction in investment spending. Higher interest rates also discourage consumer borrowing for big-ticket items like houses and cars, further reducing investment demand. On the other hand, when interest rates are lower, borrowing becomes more attractive, leading to increased investment demand.

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User James Camfield
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