Question

explain how a decrease in the interest rate will affect investment

Answer 1

A decrease in the interest rate increase the marginal efficiency of capital and it also increase the consumption in the economy as the opportunity cost of holding the money decrease, At a lower interest rate the investment that were not profitable at a higher interest rate becomes more profitable as the cost of borrowing decrease so that increase the borrowing and investment in the market.

Example, if a project gives a profit of 10% and the interest rate of borrowing is 10% then the person will not invest but if the interest rate falls to 8% then that's a profit of extra 2% and investment will increase.