Question

Which of the following best describes the economic effect that results when

Answer 1

Answer:

C.  Borrowing money becomes more expensive and there is less investment in production.

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Answer 2

The correct answer is C) Borrowing money becomes more expensive and there is less investment in production.

What best describes the economic effect that results when the government increases interest rates and restricts the lending of money is "Borrowing money becomes more expensive and there is less investment in production."

In the United States, the Federal Reserve plays the role of the Central bank. Better known as the Fed, the Federal Reserve controls the monetary policy in the US and oversees the financial system of the country. When the Fed increases interest rates and restricts the lending of money investment is reduced because money has a higher cost. Higher interest rates help the traditional investor but limit the generation of loans because the interests is elevated. It is no time to ask for bank credits.