BANKING AFFAIRS

Detailed explanation-1: -Both price level and real GDP will fall. So, an increase in interest rates will-ceteris paribus-cause real GDP to decrease.

Detailed explanation-2: -When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

Detailed explanation-3: -Higher central bank key interest rates affect the cost of borrowing for banks, which then pass those costs onto businesses, consumers and even governments. That means higher borrowing costs, such as for buying a house. Higher borrowing costs eventually slow borrowing to consumer and thus the overall economic activity.

Detailed explanation-4: -When the Fed raises interest rates, your credit card debt becomes more expensive. That’s because the interest rates charged by credit card companies tend to move in lockstep with the federal funds rate. This key interest rate impacts how much commercial banks charge each other for short-term loans.