If inflation is expected to increase,this may cause:
A) interest rates to rise.
B) the demand for loanable funds to fall.
C) the supply of loanable funds to increase.
D) interest rates to fall.

Question

Quizplus · Accepted Answer

When inflation is expected to increase, the central bank may increase interest rates to control inflation. Higher interest rates make borrowing more expensive, reducing the demand for loanable funds. Thus, option A is the correct choice. Option B and C are incorrect as they are the opposite effects of a rise in interest rates. Option D is incorrect because inflation expectations and interest rates are usually positively related.

If Inflation Is Expected to Increase,this May Cause