Question

Write in short.What effect will an increase in interest rates have on the trend of the CPI curve?

Answer 1

An increase in interest rates is likely to have a downward effect on the trend of the Consumer Price Index (CPI) curve. Higher interest rates tend to reduce spending and borrowing, which can have a dampening effect on economic activity. This can lead to decreased demand for goods and services, causing prices to stabilize or potentially decrease. As a result, the CPI, which measures changes in the average price level of a basket of goods and services, is likely to show a slower rate of increase or even a decline.