If a bank expects inflation to increase in the near future,how will it respond?
A) It will start paying less interest on deposits.
B) It will seek to reduce the amount of cash held in its vaults.
C) It will temporarily scale back its efforts to gain new customers.
D) It will start charging more interest on loans.
E) It will temporarily suspend withdrawals.

Question

Quizplus · Accepted Answer

When a bank expects inflation to increase, it will start charging more interest on loans in order to protect its profit margins. This is because inflation reduces the purchasing power of money, so the bank needs to charge higher interest rates to compensate for the decrease in the value of the loan over time.

If a Bank Expects Inflation to Increase in the near Future,how