Interest Rates and Investment Relationship Steps:

• Recall that interest rates affect borrowing costs for businesses and consumers.
• Higher interest rates increase the cost of loans, discouraging borrowing for investment projects.
• Lower interest rates reduce borrowing costs, encouraging more investment.
• Evaluate each option against this inverse relationship to identify the accurate statement.

Why B is correct:

• Higher interest rates make loans more expensive, reducing investment as firms delay or cancel projects (per the investment demand curve, which slopes downward with respect to interest rates).

Why the others are wrong:

• A: Falling interest rates typically boost demand-pull inflation, not cost-push, which stems from supply-side cost increases like raw materials.
• C: Identical to B, but assuming a potential intent for the opposite, rising rates decrease, not raise, investment.
• D: Interest rate changes influence investment, which drives production levels via the aggregate demand curve.

Final answer: B