Which of the following would be most likely to lead to a higher level of interest rates in the economy? a. Households start saving a larger percentage of their income. b. The economy moves from a boom to a recession. c. The Federal Reserve decides to try to stimulate the economy. d. The level of inflation begins to decline. e. Corporations step up their expansion plans and thus increase their demand for capital.

Answer: E. Corporations step up their expansion plans and thus increase their demand for capital.

Explanation: Interest rates are the costs of borrowing or the additional value one derives from lending out money.

Interest rates are both income and expenses depending on the side a person is.

From the above question, corporations step up their expansion plans and thus increase their demand for capital which is later translated to an increase in interest rate. This is as a result of the increased demand for capital (money) which when borrowed from the bank will generate a high interest rate.

E

Explanation:

Corporations step up their expansion plans and thus increase their demand for capital.

An interest rate is defined as the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. It is the rate a bank or other lender charges to borrow its money, or the rate a bank pays its savers for keeping money in an account. If there is a rise in demand for capital fom the banks, they have a tendency to increase the interest rates as a lot of money is being used in the economy. This also occurs to reduce demand on capital.