ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As the theory goes, if it’s more expensive to borrow money or carry a balance on a credit card, consumers will spend less. When spending declines, demand will fall and, eventually, so will the price of everyday goods.

Detailed explanation-2: -The first domino to fall is inflation. Increased inflation leads to losses in the stock market, higher interest rates and economic anxiety for companies. This makes for perfect conditions for a recession to take hold, but it doesn’t have to.

Detailed explanation-3: -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-4: -The Federal Reserve continues to pursue efforts to stem the tide of higher inflation by slowing the economy. Since March 2022, the Fed has raised interest rates substantially while gradually reducing its asset holdings. The economy continues to maintain positive growth despite the Fed’s measures.