At higher interest rates:
A) the price of goods and services are reduced.
B) the price of borrowing and the interest rates are reduced.
C) the cost of borrowing and the return on savings are greater.
D) the cost of borrowing and the return on savings are reduced.

Question

Quizplus · Accepted Answer

When interest rates are higher, it means that the cost of borrowing money also becomes higher. This discourages borrowing and encourages saving. The higher return on savings makes it more profitable to save. Similarly, the higher cost of borrowing discourages people from borrowing and taking out loans, resulting in a decrease in demand for loans. Therefore, the cost of borrowing and the return on savings are greater. Option A is incorrect as it indicates that higher interest rates would reduce the price of goods and services, which is not true because higher interest rates often result in a decrease in spending and could lead to inflation causing price increases. Option B is also incorrect as it suggests that the price of borrowing and interest rates both reduce when they are expected to increase.

At Higher Interest Rates