3. Explain why an increase in the interest rate reduces the amount of residential investment?�
1 answer
An increase in the interest rate reduces the amount of residential investment because higher interest rates make borrowing money more expensive for individuals and businesses. When the cost of borrowing money increases, it becomes more difficult for people to take out loans to purchase homes or invest in residential properties. As a result, potential homebuyers may be deterred from making purchases, leading to a decrease in residential investment. Additionally, higher interest rates can also make it less profitable for developers and investors to build new residential properties, further contributing to a reduction in residential investment.