Which of the following is likely to cause monetary restraint to be effective?
A)High expectations overwhelm high interest rates.
B)Businesses have the ability to borrow funds from foreign banks.
C)People behave rationally and borrow less when interest rates rise.
D)None of the choices are correct.

Question

Quizplus · Accepted Answer

When interest rates rise, people tend to borrow less due to the higher cost of borrowing, which leads to a decrease in the money supply and ultimately, monetary restraint becomes more effective. Option A is incorrect because high expectations can lead to an increase in borrowing and spending, which would be the opposite effect of monetary restraint. Option B is incorrect because if businesses can borrow from foreign banks, it means they have access to credit outside of the domestic market, making monetary restraint less effective. Option D is incorrect because C is a correct answer.

Which of the Following Is Likely to Cause Monetary Restraint