Interest rates can increase due to expected inflation, individual savings, and the availability of good investment opportunities. They also tend to rise during recessions, and long-term bond interest rates are more volatile than short-term rates.
Interest rates are influenced by various factors, including expected inflation, individual savings, and investment opportunities for companies.
When expected inflation increases, interest rates are likely to increase (option a).
When individuals in general increase the percentage of their income that they save, interest rates are also likely to increase (option b).
Additionally, if companies have fewer good investment opportunities, interest rates are likely to increase (option c).
Regarding option d, interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.
And finally, option e states that interest rates on long-term bonds are more volatile than rates on short-term debt securities like t-bills.
The above question is incomplete, the complete question is:
Which of the following statements is correct? Answer
a. If expected inflation increases, interest rates are likely to increase.
b. If individuals in general increase the percentage of their income that they save, interest rates are likely to increase.
c. If companies have fewer good investment opportunities, interest rates are likely to increase.
d. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.
e. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.