Classify Each of the Following in Terms of Their Effect

question 38

Multiple Choice

Classify each of the following in terms of their effect on interest rates (increase or decrease) :
I. Covenants on borrowing become more restrictive
II. The Federal Reserve increases the money supply
III. Total household wealth increases

• A) I increases; II increases; III increases
• B) I increases; II decreases; III decreases
• C) I decreases; II increases; III increases
• D) I decreases; II decreases; III decreases
• E) none of the above

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Definitions:

World Price

The international market price of a good or service, influenced by global supply and demand.

Import

Bringing in merchandise or services from overseas with the intent to sell them within a country.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, representing the benefits one misses out on by choosing one option over another.

Trade

The exchange of goods, services, or both between individuals, businesses, or countries.