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What does the term 'interest rate' refer to in monetary policy?

Practice Questions

Q1
What does the term 'interest rate' refer to in monetary policy?
  1. The cost of borrowing money
  2. The price of goods and services
  3. The value of currency
  4. The level of government debt

Questions & Step-by-Step Solutions

What does the term 'interest rate' refer to in monetary policy?
  • Step 1: Understand that 'interest rate' is the amount of money you pay to borrow money.
  • Step 2: Realize that when you borrow money, you usually have to pay back more than you borrowed because of this interest.
  • Step 3: Know that 'monetary policy' is how a country's central bank controls the economy, including setting interest rates.
  • Step 4: Learn that when the central bank changes interest rates, it affects how much it costs to borrow money.
  • Step 5: Remember that lower interest rates make borrowing cheaper, while higher rates make it more expensive.
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