Which statement is most likely to be correct when interest rates rise?
A - AQA - GCSE Business - Question 6 - 2023 - Paper 1
Question 6
Which statement is most likely to be correct when interest rates rise?
A. Businesses increase their expansion plans.
B. Businesses need to reduce production to mat... show full transcript
Worked Solution & Example Answer:Which statement is most likely to be correct when interest rates rise?
A - AQA - GCSE Business - Question 6 - 2023 - Paper 1
Step 1
A. Businesses increase their expansion plans.
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Answer
This statement is unlikely to be correct. Higher interest rates generally lead to increased borrowing costs, which discourage businesses from expanding, as they may face higher expenses on loans.
Step 2
B. Businesses need to reduce production to match sales.
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Answer
This is a plausible answer. When interest rates rise, consumer spending often declines, leading businesses to reduce production to prevent excess inventory.
Step 3
C. Consumer spending rises so businesses will employ more staff.
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Answer
This statement is incorrect. Higher interest rates typically result in decreased consumer spending, which would not lead to businesses hiring more staff.
Step 4
D. Demand of luxury and non-essential products rise.
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Answer
This statement is also unlikely to be correct. As interest rates rise, consumers tend to prioritize essential goods over luxury items, leading to a potential decrease in demand for non-essential products.
