Question

Suppose a new process was developed that could be used to make oil out of seawater. The equipment required is quite expensive, but it would in time lead to low prices for gasoline, electricity, and other types of energy. What effect would this have on interest rates? Why?

Answer 1

Interest rates will rise

Step-by-step explanation:

The reason is that the new process will lead to an appreciable rise in productivity in the energy sector. This rise in productivity positively affect the the rate of return on the investments of producers which indicates an increase in income. As people have more money to spend due to increase in income, demand will therefore rise. Increase in income would make the amount of savings and investment rise in the economy. The rise in investment will eventually lead to a rise all interest rates.

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