How do lower interest rates generally affect investment levels?

Lower interest rates decrease the cost of borrowing, which provides an incentive for businesses to take out loans for investment projects such as purchasing new equipment, expanding facilities, or engaging in research and development. When borrowing costs are lower, the return on investment increases, making it more attractive for firms to invest in activities that can lead to growth. Additionally, consumers might also feel more confident about their financial situation with lower interest rates, which can further boost demand for products and services, encouraging businesses to invest to meet that demand. As a result, overall investment levels in the economy tend to rise when interest rates are low.

In contrast, the other options highlight scenarios that do not capture the direct relationship between interest rates and investment levels effectively. For example, lower interest rates do not inherently decrease consumer spending; rather, they generally stimulate it. Similarly, the idea that lower rates would have no significant effect on investment contradicts economic theory, which emphasizes the role of interest rates in influencing capital expenditures. Lastly, lower interest rates typically encourage more investment rather than savings, as the opportunity cost of borrowing tends to decrease, making investment more appealing.