Higher interest rates raise borrowing costs, curbing investment

Steps:

• Interest rates represent the price of borrowing money.
• Rising rates make loans more expensive for firms.
• Firms finance machine purchases through borrowing or retained earnings.
• Higher costs reduce profitable investment, leading to fewer machine buys.

Why B is correct:

• Per the investment demand curve in economics, higher interest rates shift firms away from capital expenditures like machines to save on costs.

Why the others are wrong:

• A: Higher rates increase loan costs, reducing consumer borrowing and spending.
• C: Higher rates boost returns on savings, so people hold less idle cash.
• D: Savers receive higher interest payments, earning greater rewards.

Final answer: B