Question

If the domino effect occurs as a result of changes in the money supply, what will most likely happen as an immediate result of interest rates being increased?

Borrowing will decrease.
Investing will decrease.
Inflation will increase.
Liquidity will increase.

Answer 1

If interest rates are increased, borrowing will decrease as the cost of borrowing becomes more expensive. This will likely lead to a decrease in investing, as businesses and individuals are less likely to take on loans when interest rates are higher. Inflation may also decrease as the decrease in borrowing and investing slows down economic growth. Overall, an increase in interest rates will likely lead to a decrease in liquidity as individuals and businesses cut back on spending and borrowing.