ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Unemployment rates would rise
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taxes will rise
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The government would put a freeze on prices
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international trade would stop
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Detailed explanation-1: -“Raising interest rates helps to reduce the overall level of demand and therefore, hopefully, reduces the upward pressure on prices, ” says Gapen. So why might this cause a recession? In the long run, businesses may respond to consumers purchasing fewer goods and services by reducing production, explains Gapen.
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: -While real interest rates can be effectively negative if inflation exceeds the nominal interest rate, the nominal interest rate is, theoretically, bounded by zero. This means that negative interest rates are often the result of a desperate and critical effort to boost economic growth through financial means.
Detailed explanation-4: -Raising rates can lead major businesses, particularly those that hold high amounts of corporate debt, to lay off workers or slow hiring. As a result, the unemployment rate increases, further slowing the circulation of money as consumer demand drops.