BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Lead to higher GDP growth
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Lead to lower GDP growth
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Mean higher cost of raw materials
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Mean lower cost of raw materials
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Detailed explanation-1: -This will shift the AD curve inwards, and there will be a resulting contraction down the AS curve. 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: -The fed funds rate impacts how much commercial banks charge each other for short-term loans. A higher rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money.
Detailed explanation-3: -If lower interest rates cause a rise in AD, then it will lead to an increase in real GDP (higher rate of economic growth) and an increase in the inflation rate.
Detailed explanation-4: -One fundamental driver of r* is the potential growth rate of the economy: in a high-growth economy, it takes a higher real interest rate to encourage the volume of saving required for the high investment levels needed to sustain a fast-growing economy.