Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To control inflation by adjusting interest rates
B
To provide loans to the public directly
C
To regulate stock market prices
D
To manage international trade agreements
Understanding the Answer
Let's break down why this is correct
Answer
The primary role of central banks in relation to interest rates is to manage the economy's money supply and influence economic activity. They do this by setting benchmark interest rates, which affect how much it costs to borrow money. For example, if a central bank lowers interest rates, it becomes cheaper for people and businesses to take out loans, encouraging spending and investment. This can help boost the economy during slow times. Conversely, if the economy is growing too quickly and inflation rises, central banks may raise interest rates to slow down spending and keep prices stable.
Detailed Explanation
Central banks change interest rates to help control inflation. Other options are incorrect because Some might think central banks give loans directly to people; It's a common mistake to think central banks set stock prices.
Key Concepts
central banks
Topic
Interest Rates and Economic Effects
Difficulty
easy level question
Cognitive Level
understand
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