What happens when interest rates rise?
A) Discretionary income increases
B) The demand for discretionary goods increases
C) Discretionary income is unchanged
D) The demand for discretionary goods decreases
E) discretionary income increases and the demand for discretionary goods decreases

Question

Quizplus · Accepted Answer

When interest rates rise, borrowing becomes more expensive, which leads to a decrease in the demand for discretionary goods as people have less money to spend after paying high interest rates on loans. Therefore, the correct choice is D, as it states that the demand for discretionary goods decreases.

What Happens When Interest Rates Rise