What happens when the central bank increases the bank rate?

A. Amount of borrowing increases
B. Amount of borrowing decreases
C. Supply of money increases
D. Commercial banks are not affected

Correct Answer:

Option B = Amount of borrowing decreases

Explanation

The central bank normally raises the lending rates in order to discourage borrowing. When the interest charged on loans is high, fewer people will be willing to borrow money from financial institutions.