In a financial market, which of the following events would lead to a decrease in project investments by corporates?

Solution

The level of investment in the economy is sensitive to changes in the prevailing interest rate. In general, if interest rates are high, capital investment decreases. Conversely, if interest rates are low, capital investment increases. This is because when interest rates are high, investment becomes more expensive. As money becomes more expensive to borrow, businesses, governments and individuals start slowing their investment plans on the other hand if interest rates are low, governments, Individuals & business can borrow the money they need more cheaply. Demand, on the other hand, will be directly related to investment. A higher demand in economy will attract more investment by businesses.