Answer: Option B
Answer: (b)
The rise in interest rates results in an increased cost of borrowing so lending decreases because businesses do not borrow at a high cost. Moreover, it results in an increase in the cost of production as the cost for all suppliers of raw material increases due to an increase in their borrowing cost.
For individuals, the savings increase as they start saving in lieu of higher return as interest. Higher rates of interest result in a decrease in return on capital as the cost of investment in capital increases.