Which one of the following actors typically benefits when interest rates increase?

• A. Firms seeking to finance new investments
• B. Borrowers with variable-rate loans
• C. Homebuyers with fixed-rate mortgages
• D. Savers who deposit money in banks

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the role of interest rates in the economy. Interest rates represent the cost of borrowing money and the return on saving money. When interest rates increase, borrowing becomes more expensive, and saving becomes more rewarding.
2. Step 2: Analyze the impact on firms seeking to finance new investments. Higher interest rates mean higher borrowing costs, so firms will generally face increased expenses when taking loans for investments, which is a disadvantage for them.
3. Step 3: Consider borrowers with variable-rate loans. Since their interest payments adjust with market rates, an increase in interest rates will raise their loan payments, making it more costly for them to borrow.
4. Step 4: Evaluate homebuyers with fixed-rate mortgages. Their interest rate is locked in, so an increase in market interest rates does not affect their current mortgage payments, meaning they neither benefit nor lose directly from the increase.
5. Step 5: Examine savers who deposit money in banks. When interest rates rise, banks typically offer higher interest on deposits, increasing the return savers receive on their savings, which benefits them.