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) Corporations step up their expansion plans and thus increase their demand for capital.
C) The level of inflation begins to decline.
D) The economy moves from a boom to a recession.
E) The Federal Reserve decides to try to stimulate the economy.

Question

Quizplus · Accepted Answer

When corporations step up their expansion plans and increase their demand for capital, this puts upward pressure on interest rates as lenders demand higher returns on their investments. Choice A would lead to a decrease in interest rates, as there would be less demand for credit. Choice C would also lead to a decrease in interest rates, as lower inflation means there is less need to raise rates to combat inflation. Choice D would likely lead to a decrease in interest rates, as the Fed would likely lower rates to stimulate the economy. Choice E would also lead to a decrease in interest rates, as the Fed would lower rates to stimulate the economy.

Which of the Following Would Be Most Likely to Lead