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, causing consumers to reduce their spending, particularly on non-essential, discretionary goods. This decrease in demand causes businesses to respond by reducing production and potentially lowering prices, leading to a decrease in revenue and possibly profits. Therefore, the demand for discretionary goods decreases.

What Happens When Interest Rates Rise