Which of the following is most likely to occur when interest rates increase in an economy?
A
The supply of money will increase
B
Consumer borrowing will increase
C
Investment spending by firms will decrease
D
Aggregate demand will rise
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검증된 단계별 안내
1
Step 1: Understand the relationship between interest rates and economic behavior. Interest rates represent the cost of borrowing money. When interest rates increase, borrowing becomes more expensive.
Step 2: Analyze the effect on consumer borrowing. Since borrowing costs are higher, consumers are less likely to take out loans for consumption, so consumer borrowing tends to decrease, not increase.
Step 3: Consider the impact on investment spending by firms. Firms often finance investment projects through borrowing. Higher interest rates increase the cost of financing, which typically leads to a reduction in investment spending.
Step 4: Examine the supply of money. The supply of money is usually controlled by the central bank and is not directly increased by higher interest rates; in fact, higher rates often result from tighter monetary policy, which can reduce money supply growth.
Step 5: Look at aggregate demand. Since investment spending is a component of aggregate demand, a decrease in investment due to higher interest rates tends to reduce aggregate demand rather than increase it.