Chapter 28, Problem 6MCQ

To determine

The problem of moral hazard.

Explanation of Solution

How people and companies obtain credit for essential expenditures and financial planning are significantly impacted by changes in interest rates.

The goal of lowering hobby costs is to lower borrowing costs and increase people's and businesses' propensity to invest and spend.

Changes in interest rates have an impact on a variety of economic factors, including house sales and mortgage rates, consumer credit and expenditure, and stock market movements. Inflation and interest rates are closely connected. To put it another way, interest rates rise to control inflation.

An increase in interest rates will follow a decline in the federal funds rate.

Hence, the correct option is E.