Question

Interest rates determine buying power. Which of the following is a true statement?

1) Higher interest rates increase buying power
2) Lower interest rates decrease buying power
3) Interest rates have no impact on buying power
4) Buying power is determined by income

Answer 1

Interest rates play a significant role in determining buying power. Higher interest rates decrease buying power, while lower interest rates increase buying power.

Step-by-step explanation:

Interest rates play a significant role in determining buying power. Higher interest rates decrease buying power, while lower interest rates increase buying power. This is because higher interest rates make borrowing more expensive, reducing consumption and investment spending. On the other hand, lower interest rates stimulate borrowing and investment spending.