ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Banks often tighten credit standards when they increase rates, further reducing the number of loans they make. productivity means fewer goods on the market. It can also mean the business needs fewer employees.

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: -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-4: -The lower interest rates are, the lower the cost of borrowing, meaning more people will be able to take out a mortgage, fuelling more buyers. The higher the rates, the more expensive it will be to borrow, and, as a result, fewer people will be able to buy a house.

Detailed explanation-5: -Hence, when market interest rates fall, banks’ funding costs usually fall more quickly than their interest income, and net interest margins rise. Over time, however, net interest margins fall as loans are repaid or renewed at lower interest rates.