12. An increase in the __ interest rate __ investment. a. nominal, increases b. nominal, decreases c. real, increases d. real, decreases

## Step 1<br />The problem is asking us to identify the relationship between interest rates and investment. The interest rate can be either nominal or real. <br /><br />## Step 2<br />Nominal interest rate is the interest rate before taking inflation into account. It is the rate that is quoted on loans and deposits.<br /><br />## Step 3<br />Real interest rate is the interest rate that has been adjusted to remove the effects of inflation. It reflects the actual cost of funds to the borrower and the real yield to the lender.<br /><br />## Step 4<br />Generally, when interest rates increase, the cost of borrowing money also increases. This means that the return on investments that require borrowed money will also increase. <br /><br />## Step 5<br />Therefore, an increase in the nominal interest rate typically leads to an increase in investment.