ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The cost of borrowing increases. Individuals and businesses will refrain from borrowing money. Debt payments are higher. This leaves people with less money to spend on other goods and services and results in lower consumption.

Detailed explanation-2: -As interest rates increase, it becomes more expensive to borrow money. Interest rates are one of the three major factors that determine your monthly payment. The others are the amount borrowed and the time to repay the debt. Borrowers with variable interest rate debt are affected immediately as rates increase.

Detailed explanation-3: -Higher interest rates make it more costly for businesses to borrow money through loans and lines of credit and affect how much interest you pay on your credit card or home purchases. The impact of this generally ripples through the overall economy.

Detailed explanation-4: -Rising interest rates can reduce a business’s ability to service debt, as rising costs are incurred by the organization with no corresponding increase in revenues to offset. Businesses may be placed in a precarious situation if too much of their capital is consumed paying off high-interest debt.

Detailed explanation-5: -Higher interest rates make it more expensive for people to borrow money and encourage people to save. Overall, that means people will tend to spend less. If people spend less on goods and services overall, the prices of those things tend to rise more slowly. Slower price rises mean a lower rate of inflation.