Which situation most likely results when the government raises interest rates to banks?

If the interest rate (the price of money) rises, there is a contraction in the quantity demanded in the money markets (law of demand). The law of demand describes the inverse relationship between price and quantity demanded, both in product and factor markets.

High interest rates disincentivate investment because borrowing funds to finance new projects has become relatively more expensive. Therefore, businesses will not be willing to get indebted to expand their businesses under this scenario.

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