An increase in interest rates
A.
decreases investment spending on machinery, equipment, factories, and consumption spending on durable goods, but increases net exports.
B.
decreases investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
C.
increases investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
D.
decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net exports.
Answer
B.
decreases investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
capital expenditure decreases because less profit margin while on the other hand, consumption decreases since public deposits will grow
Explanation
The whole thing is summarized as follows
- capital expenditure……decreases because less profit margin
- consumption……..decreases since public deposits will grow
- exports……..decreases, as currency appreciates.
Basically, also customers with debts have less income to spend because they are paying more interest to lenders and this decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net export
