Question

Which of the following situations would be most likely to lead to an increase in interest rates in the economy?
a. Households start saving a larger percentage of their income.
b. The Federal Reserve decides to try to stimulate the economy.
c. The level of inflation begins to decline.
d. The economy moves from a boom to a recession.
e. Corporations step up their expansion plans and thus increase their demand for capital.

Answer 1

Answer:

The correct answer is E

Explanation:

The interest rate is defined as the rate of percentage which is charged on the loan or which is paid on the savings. It is the reward for lending as well as the cost of borrowing.

When the interest rate rises or increases, then everyone tend to borrow more amount of money and the high demand of the credit states that the people are willing to pay more for the same.

So, the situation which would increase the interest rate in the economy is when the corporations set up for the expansion plans and increase the demand for the capital.