Which of the following would be most likely to lead to higher interest rates on all debt securities in the economy?
A) Households start saving a larger percentage of their income.
B) The economy moves from a boom to a recession.
C) The level of inflation begins to decline.
D) With expansion plans, corporate increase their demand for capital.

Question

Quizplus · Accepted Answer

When corporations increase their demand for capital, there is a higher demand for borrowing which leads to an increase in interest rates on all debt securities in the economy. The other options would not necessarily lead to higher interest rates. In A, higher savings may decrease the demand for borrowing, leading to lower interest rates. In B, a recession may lead to lower interest rates as the central bank may lower rates to stimulate the economy. In C, a decline in inflation may also lead the central bank to lower rates.

Which of the Following Would Be Most Likely to Lead