Question

1. Prepare a flowchart explaining the interrelation between the concepts:
    a. Interest rate
    b. Investment

Answer 1

Ans…..

Changes in interest rates affect the public's demand for goods and services and, thus, aggregate investment spending. A decrease in interest rates lowers the cost of borrowing, which encourages businesses to increase investment spending.

The level of investment in the economy is sensitive to changes in the prevailing interest rate. In general, if interest rates are high, investment decreases. Conversely, if interest rates are low, investment increases. This inverse correlation is key in understanding the relationship between the interest rate and investment.

Interest rate 0 Marginal efficiency of Capital (MEC) 80 100 Quantity of investment