A higher level of income in all sectors of the economy causes the demand for funds to _______ and the interest rate to _____.
A) increase; rise
B) decrease; fall
C) increase; fall
D) decrease; rise

Question

Quizplus · Accepted Answer

When income levels rise in all sectors of the economy, people and businesses would have more money to spend and invest. This would increase the demand for funds (i.e., loans) from banks and other financial institutions, causing the interest rate to rise in order to maintain equilibrium between the supply and demand of funds. Thus, the correct answer is A) increase; rise.

A Higher Level of Income in All Sectors of the Economy