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Sequence the situations that take place in the economy when financial institutions increase the interest rate:

1. Business shies away from borrowing from the bank.
2. Production cost increases.
3. Price of finished goods increases.
4. Demand for finished goods decreases.

Sagot :

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Final answer:

Increasing interest rates in the economy lead to higher production costs, reduced demand for finished goods, reluctance in business borrowing, and increased prices of finished goods.


Explanation:

Effects of Increasing Interest Rates in the Economy:

  1. Production cost increases: When financial institutions raise interest rates, businesses face higher costs of borrowing and production, reducing their profitability.
  2. Demand for finished goods decreases: Due to increased costs, businesses cut back on production, leading to a decrease in the demand for finished goods.
  3. Business shies away from borrowing: Higher interest rates deter businesses from borrowing money from banks, impacting their investments and expansion plans.
  4. Price of finished goods increases: With reduced supply and decreased demand, the equilibrium price of finished goods rises.

Learn more about Effects of increasing interest rates in the economy here:

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