How Do Interest Rates Affect Investment in the Economy

Multiple Choice

How do interest rates affect investment in the economy?

A) Lower interest rates lower the cost of borrowing for firms, and so investment rises.
B) Lower interest rates lower the after-tax profit for firms, and thus investment falls.
C) Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks.
D) Higher interest rates increase government expenditure and thus raise investment.