Why Does Investment Spending Depend On Interest Rates

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Q: Why does investment spending depend on interest rates, among other factors? A: Investment spending depends on interest rates due to opportunity cost and risk. For example, when interest rates rise, the opportunity cost of your investment also increases. When interest rates are higher investors are willing to pay less for payment in the future. Which in turn leads to a lower rate of investment. The opposite can be said for falls in interest rates that are met will lower opportunity costs. Q: Why would most investments in the economy fail to take place if there were no financial institutions? A: Most investments in the economy would fail to take place if there were no financial institutions because many independent investors do not like to take large amounts of risk. By utilizing financial intermediaries, which are “organizations that receive funds from savers and channel them to investors,” people are given peace of mind in knowing that their source of money/investing is more stable and accounted for. Those who apply this principle also value the liquidity, or convertibility, that financial institutions provide in the case of emergency or cold feet. Q: Why do all societies have some form of money? A: All societies have some form of money because it makes economic transactions much more convenient and efficient. The purpose of money can be simplified into two main concepts including unit of account and store of value. Money serves as a unit of account which means
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