Question Three [25marks]a. Looking at business fixed investment, explain why investment is negatively related to theinterest rates.b. Using the Tobin’s q theory, explain the relationship between...

Inverse Relation between Interest Rate and Investments
Interest Rate and Investments are inversely related due two main factors.
First major factor is that due to rise in interest rates, depositing money in banks becomes more attractive option. Consumers will prefer depositing the money in bank since they are getting higher interest rates on money deposited. Therefore, consumers will prefer depositing money in bank instead of investing in new opportunities due to higher interest rates.
Secondly, due to high interest rate and people preferring to keep money in banks, they will reduce the...