ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase commercial bank rates and increase the value of £
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Increase commercial bank rates and lower the £value
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Lower commercial bank rates and increase the value of £
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Lower commercial bank rates and lower the value of £
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Detailed explanation-1: -When interest rates are higher, banks make more money, by taking advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing. A bank might pay its customers a full percentage point less than it earns through investing in short-term interest rates.
Detailed explanation-2: -Because higher interest rates mean higher borrowing costs, people will eventually start spending less. The demand for goods and services will then drop, which will cause inflation to fall. Similarly, to combat the rising inflation in 2022, the Fed has been increasing rates throughout the year.
Detailed explanation-3: -Increasing interest rates does not increase a nation’s money supply because the two have an inverse relationship. Higher interest rates translate to a lower supply of money in the economy.
Detailed explanation-4: -Higher returns for savers. If you’re a saver, low interest rates have brought about the financial equivalent of a long drought. Tamed inflation. More lending. More interest income for retirees. Stronger dollar to boost purchasing power. Bottom line. 25-Jan-2023