What happens when the central bank increases the bank rate in an economy

Assessment: JAMB UTME - Economics - 2022 Subject: Economics

Question 1 Report

What happens when the central bank increases the bank rate in an economy
Answer Details
When the central bank increases the bank rate, it becomes more expensive for banks to borrow money from the central bank. This in turn causes interest rates on loans and mortgages offered by commercial banks to increase as well. As a result, people and businesses are less likely to take out loans, because they have to pay more in interest. So, borrowing is discouraged. On the other hand, banks are able to charge more for loans, so they can increase their profits. However, this increase in interest rates can also lead to a decrease in spending, which can slow down economic growth.
Read lesson note on Banking (JAMB)
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