Chapter 16, Problem 4MCQ

To determine

The question requires us to determine the factor which is negatively related to the level of planned investment.

Explanation of Solution

The intended investment undertaken by the firms during a given financial period is considered a planned investment in an economy.

There is an inverse relationship between planned investment spending and the interest rate because the interest rate represents the costs of borrowing for a firm. A higher interest rate indicates a higher cost of borrowing which discourages the firms and reduces investment in the market. Similarly, a lower interest rate will encourage the firms to take more loans and promote their business by investing more.

Thus, option “d” is correct.

The other options are incorrect because:

1. There is a positive relationship between the planned investment and the rate of return. The higher the return, the higher will be investment level, and vice versa.
2. There is no direct relationship between the level of planned investment and consumer spending.
3. The actual investment spending is the sum of planned investment and unplanned investment.