-
Which of the following is not true when the interest rate in the economy goes up?
-
- Saving increases
- Lending decreases
- Cost of production increases
- Return on capital increases
Correct Option: D
The rise in interest rates results in increasing cost of borrowing so lending decrease because businesses do not borrow at high cost. Moreover it results in increases in cost of production as the cost for all suppliers of raw material increases due to increase in their borrowing cost. For individuals the savings increases as they start saving in lieu for higher return as interest. Higher rates of interest result in decreases in return on capital as cost of investment in capital increases.