Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They stimulate economic growth by increasing consumer spending.
B
They slow down economic growth by increasing borrowing costs.
C
They have no impact on economic growth.
D
They promote economic growth by lowering inflation.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates go up, borrowing money becomes more expensive for people and businesses. This means that individuals might delay buying homes or cars, and companies may hold off on expanding or investing in new projects. As a result, consumer spending and business investment can slow down, which can lead to a decrease in overall economic growth in the short term. For example, if a small business wants to take out a loan to buy new equipment but faces higher interest rates, it might choose not to borrow, leading to fewer jobs created and less money circulating in the economy. Therefore, while higher interest rates can help control inflation, they often lead to slower economic activity in the immediate future.
Detailed Explanation
When interest rates go up, borrowing money becomes more expensive. Other options are incorrect because Some might think higher rates encourage spending; It's a common belief that interest rates don't matter.
Key Concepts
economic growth
interest rate hikes
Topic
Interest Rates and Economic Effects
Difficulty
medium level question
Cognitive Level
understand
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