During a financial crisis in the early 2000s,the government of Argentina partially froze bank accounts for a year.Given the supply of saving and the demand to borrow functions,we would expect this action to cause the interest rate to:

Question

Quizplus · Accepted Answer

The partial freeze of bank accounts reduces the supply of savings as people are unable to withdraw their money. As a result, the demand for borrowing remains the same or may even increase due to the economic uncertainty. The decrease in supply and constant or increasing demand for borrowing leads to an increase in the interest rate. This high-interest rate would discourage borrowing, leading to a decrease in borrowing. Therefore, the correct option is B, which states that the interest rate will increase, and borrowing will decrease.

During a Financial Crisis in the Early 2000s,the Government of Argentina