Question

Rising interest rates tend to contract the level of economic activity. increase the level of business investment. indicate governmental expansion of the economy. signal the trough of a recessionary market.

Answer 1

The correct answer is rising interest rate curtails the level of economic activity.

Step-by-step explanation:

Increased interest rates increase the cost of borrowing. As a result, there is a decline in private investment. This further causes aggregate demand to decline. As aggregate demand falls there is a leftward shift in the aggregate demand curve, income and consumption decline as well. The price level falls as well. the decline in the prices causes the supply to decrease as well.

So, we see that rising interest rates cause a contraction in the overall economic activity.