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What happens to consumer and business spending when interest rates go up?

A. Business spending increases and consumer spending decreases.
B. Both types of spending increase.
C. Both types of spending decrease.
D. Consumer spending increases and business spending decreases.

Sagot :

GinnyAnsweridn

Final answer:

When interest rates increase, both business and consumer spending decrease due to reduced borrowing for investments and purchases, leading to crowding out effects.


Explanation:

When interest rates go up, business spending decreases because firms are less willing to borrow for investment, while consumer spending also decreases as households are less likely to borrow for purchases like homes and cars. This reduction in spending is referred to as crowding out and can have substantial effects on the economy.


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