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    Question

    In a financial market, which of the following events

    would lead to a decrease in project investments by corporates?
    A decrease in interest rate Correct Answer Incorrect Answer
    B increase in interest rate Correct Answer Incorrect Answer
    C increase in demand Correct Answer Incorrect Answer
    D A and C Correct Answer Incorrect Answer
    E B and C Correct Answer Incorrect Answer

    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.

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