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there is negative relationship between interest rate and investments means that as interest rate falls investment rises.And the opposite is true when interest rate rises.

Real interest rate helps to determine the trend of investment in an economy. When the interest rates are high, borrowing becomes quite expensive for the investors so they make less real investment. The high interest rates make it difficult to cover their expenditure because their products becomes less competitive in both the domestic and international market.

On the other hand, if the interest rate is low, more and more investment take place in the economy which result in more production, more employment opportunities and increase in the potential GDP. Thus the real interest rate through their effect on investment improves growth and future living standards of a nation.

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โˆ™ 2010-10-07 11:29:27
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Q: What is the relationship between interest rate and investment?
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