In which economic situation would interest rates decrease?
(1 point)
Responses
Most people are saving rather than buying houses.
Average families are choosing to invest in new businesses.
High consumption is driving a surge in the services sector.
Increased job stability is encouraging workers to make big purchases.
(1 point)
Most people are saving rather than buying houses.
(1 point)
She will be offered lower interest rates.
Maria Ivanov has owned a successful clothing boutique chain for 20 years. She has gone into debt several times to expand her business. Each time, she paid off the debt in full sooner than expected.
Question
Use the scenario to answer the question.
How will Maria’s record affect the loans she is offered?
(1 point)
Responses
She will be offered longer terms.
She will be offered longer terms.
She will be offered shorter terms.
She will be offered shorter terms.
She will be offered lower interest rates.
She will be offered lower interest rates.
She will be offered higher interest rates.
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In general, interest rates tend to decrease in an economic situation where there is high consumption driving a surge in the services sector. This is because when people are spending more money on goods and services, it stimulates economic growth and there is less need for borrowing. As a result, lenders lower interest rates to encourage borrowing and investment, which further fuels economic activity.
To understand why high consumption and a surge in the services sector would lead to lower interest rates, you can consider the following explanation:
1. High Consumption: When people are spending more money on goods and services, it indicates a healthy economy. Businesses are generating higher revenues, leading to increased profits and potentially higher employment rates. In this situation, there is less economic risk, and lenders are more willing to offer loans at lower interest rates to stimulate more spending and investment.
2. Surge in the Services Sector: The services sector includes industries such as hospitality, tourism, healthcare, education, finance, and more. When there is a surge in this sector, it often indicates increased demand for services, which in turn leads to job creation and economic growth. This growth reduces the need for borrowing, as people have more disposable income and businesses are expanding without relying heavily on loans. Lower demand for loans means that lenders can decrease interest rates to attract borrowers and maintain the flow of credit in the economy.
It's important to note that interest rates are also influenced by various other factors such as inflation, central bank policies, government regulations, and international economic developments. However, in the given choices, high consumption driving a surge in the services sector is the most likely situation that would lead to a decrease in interest rates.