Question

Explain how the following action will affect the level of planned investment spending and unplanned inventory investment. Assume the economy is initially in income equilibrium.

A sizable inflow of foreign funds into the country lowers the interest rate

A.)Planned investment spending will increase and unplanned inventory investment will decrease.

b/)Both planned investment spending and unplanned inventory investment will decrease.

c.)Planned investment spending will decrease and unplanned inventory investment will increase.

D.)Both planned investment spending and unplanned inventory investment will increase.

Answer 1

Answer (D) Both planned investment spending and unplanned inventory investment will increase.

Explanation- When the sizable inflow of foreign funds will lower the interest rate in the country's economy then it will also lower the borrowing costs. The lower borrowing costs encourage the consumers and companies to take out loans in order to finance investment and greater spending; as a result, of this, Both planned investment spending and unplanned inventory investment are expected to increase due to lowered interest rates in country's economy.