Stock prices tend to rise in anticipation of an interest rate reduction because when interest rates are low, companies find it easier and cheaper to borrow money, which can lead to increased profitability and growth potential. Therefore, investors will start buying stocks in anticipation of the positive effects of a potential interest rate reduction.

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Stock Prices Rise

Question 36

Multiple Choice

Stock prices rise:

A) usually six to twelve months after interest rates are reduced.
B) immediately after interest rates are increased.
C) in anticipation of an interest rate reduction.
D) only after people are convinced the central bank interest rate cut is permanent.

Correct Answer: