High rates of interest in a low inflation region

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Question

High rates of interest in a low inflation region

Options:

A . discourage people to make an investment

B . are not favourable for credit expansion

C . create atmosphere for capital formation

D . attract people to make an investment

Answer: Option D
Answer: (d)Inflation reflects a situation where the demand for goods and services exceeds their supply in the economy. Higher interest rates in low inflation means higher real returns not just on money, but on all other assets too. These higher real returns increases the allocation of investment.

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