Which of the following statements accurately describes the effect of a price decrease on investment spending? and European Investment Bank stand

Which of the following statements accurately describes the effect of a price decrease on investment spending?

A.Investment spending falls, because interest rates rise.
B.Investment spending rises, because interest rates fall.
C.Investment spending rises, because business can now charge more for the goods they sell.
D.Investment spending remains unchanged, because it is measured in real, not nominal, terms.

Thanks.


Investment best answer:

Answer by Ozzie
Normally, in periods of "disinflation" or "deflation", interest rates fall, to encourage additional lending and "ease" borrowing. That's the theory anyway (though it doesn't seem to apply much yet to today).

So I'd go with "B". But one could argue that investing more $ $ to produce goods that will cost less in the future wouldn't be wise, so investment spending will be AVAILABLE, but maybe not many businesses would take advantage of it. Hope this helps!

Investment

European Investment Bank stand


Image by International Transport Forum
Delegates visit the European Investment Bank exhibition stand during the International Transport Forum's 2012 Summit on "Seamless Transport: Making Connections" in Leipzig, Germany, 2-4 May 2012.

---

Orignal From: Which of the following statements accurately describes the effect of a price decrease on investment spending? and European Investment Bank stand