Question

In order to influence spending on goods and services in the short-run, monetary policy is directed at directly influencing...

a) ...unemployment rates.

b) ...inflation rates.

c) ...interest rates.

d) ...economic growth rates.

Answer 1

Interest Rates

Since higher interest rates mean higher borrowing costs, people will then begin spending less. The demand for goods and services will then drop. When the interest rates are lowered, borrowing money becomes cheaper; this entices people to start spending again on goods and services.