g Which of the following factors would be most likely to lead to an increase in interest rates in the economy? a. The Federal Reserve decides to try to stimulate the economy. b. There is a decrease in expected inflation. c. Households reduce their consumption and increase their savings. d. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. e. The economy falls into a recession.

Question

Goldie

Business

23 September, 01:04

g Which of the following factors would be most likely to lead to an increase in interest rates in the economy? a. The Federal Reserve decides to try to stimulate the economy. b. There is a decrease in expected inflation. c. Households reduce their consumption and increase their savings. d. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. e. The economy falls into a recession.

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Octavio Mann · Answer 1

The correct answer is option c.

Explanation:

An increase in interest rate can be because of an increase in demand for loanable funds or decrease in the supply of loanable funds.

Suppose most businesses decide t modernize and install new equipment. For this, they need to invest more. This will cause an increase in the demand for loanable funds. This increase in demand for loanable funds will be represented by a rightward shift in the demand curve.

This rightward shift will cause the interest rate to increase.