When interest rates increase, banks will normally
A)increase lending, but decrease deposits and the money supply.
B)increase lending, deposits, and the money supply.
C)decrease lending, but increase deposits and the money supply.
D)decrease lending, deposits, and the money supply.

Question

Quizplus · Accepted Answer

When interest rates increase, banks will normally increase lending, deposits, and the money supply. This is because higher interest rates make it more attractive for people to save money in banks, which increases deposits. The increased deposits allow banks to lend more money, which increases the money supply.

When Interest Rates Increase, Banks Will Normally