Question

As a result of the rising interest rates in this example, Businesses choose to reduce their Investment Spending by $_________ billion..

Answer 1

As a result of the rising interest rates in this example, Businesses choose to reduce their Investment Spending by $200 billion.

Explanation:

Interest rates are also being impacted by inflation. The higher the inflation rate, the higher the interest rates. This is because lenders will demand higher interest rates to compensate for the future drop in purchasing power of money.

Inflation is expected to result in a simple monetary policy, lenders will require a high rate of interest to offset this inflation, and creditors are prepared to pay a higher rate as inflation reduces the value of dollars they repay. As a result, the rate of interest rises as predicted by inflation.