Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It stimulates economic growth by encouraging more borrowing.
B
It slows down economic growth by reducing the incentives for borrowing.
C
It has no effect on economic growth.
D
It increases economic growth by raising the level of savings.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates increase, borrowing money becomes more expensive. This means that both consumers and businesses are less likely to take out loans for things like buying homes or expanding operations. As a result, spending and investment in the economy tend to decrease, which can slow down economic growth. For example, if a business wants to borrow money to buy new equipment but faces higher interest rates, it might decide to hold off on that purchase. Overall, higher interest rates can lead to less money circulating in the economy, which can hinder growth.
Detailed Explanation
Higher interest rates make loans more expensive. Other options are incorrect because Some might think higher rates encourage borrowing; It seems like interest rates might not matter.
Key Concepts
interest rates
and economic growth.
Topic
Loanable Funds Market Dynamics
Difficulty
medium level question
Cognitive Level
understand
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