Question

quiz
question 5 of 10
why would a government’s central bank raise interest rates when inflation is high?
to encourage people to spend less which can bring prices down
to encourage people to spend more which can bring prices down
to encourage people to spend less to increase demand and push prices up
to encourage people to spend more to increase demand and push prices up

Explanation:

When inflation is high, a central bank raises interest rates to make borrowing more expensive and saving more attractive. This discourages spending (since borrowing costs more) and encourages saving. Less spending reduces the demand for goods and services, which can lead to lower prices (helping to combat inflation). The first option says "To encourage people to spend less which can bring prices down" – this matches the logic of using higher interest rates to reduce spending and thus lower inflation - driven price increases. Other options suggest encouraging less spending to push prices up (which is wrong, as less spending should lower prices) or encouraging more spending (which would worsen inflation as more spending increases demand and prices).

Answer:

The correct option is: To encourage people to spend less which can bring prices down