Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases savings rates but increases economic activity.
B
It encourages higher savings rates but may slow down economic activity.
C
It has no significant effect on either savings rates or economic activity.
D
It decreases both savings rates and economic activity.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates increase, it usually encourages people to save more money. This is because higher interest rates mean that banks will pay you more for keeping your money in a savings account. For example, if the interest rate goes up from 1% to 3%, you earn more on your savings, which might motivate you to set aside extra cash. However, higher interest rates can also make borrowing more expensive, leading to less spending by consumers on things like homes and cars. Overall, while savings might go up, economic activity can slow down because people and businesses might hesitate to spend or invest.
Detailed Explanation
When interest rates go up, people earn more money on their savings. Other options are incorrect because Some might think that higher rates boost spending; It's a common belief that interest rates don't matter much.
Key Concepts
monetary policy
savings rates
Topic
Interest Rates and Economic Impact
Difficulty
medium level question
Cognitive Level
understand
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