What usually happens when the central bank raises interest rates?
A. Borrowing becomes cheaper
B. Consumers tend to spend more
C. Inflation tends to increase
D. Businesses borrow less and investment slows down
Answer (1)
The correct answer is letter D. Businesses borrow less and investment slows downWhen a central bank—like the Bangko Sentral ng Pilipinas—raises interest rates, loans become more expensive. As a result, both businesses and individuals are less likely to borrow money. This reduces overall spending and investment, which in turn slows down economic activity. The goal is usually to reduce inflation.For instance, if a company in the Philippines wants to expand by building a new factory, it may cancel or delay its plan if interest rates are high because the cost of financing will be greater. Likewise, families might postpone buying homes or cars due to higher monthly loan payments. This can cool down an overheating economy and help control rising prices.
