What happens when interest rates are high?

• A. More people borrow
• B. Fewer people borrow
• C. No effect
• D. Banks fail

Answer: (B)

High interest rates raise the cost of borrowing, so people are less likely to take out loans. When loans are more expensive, consumers postpone big purchases like homes or cars and businesses delay new investments, leading to fewer borrowers overall. The other options don’t fit because higher rates don’t typically increase borrowing, don’t imply no impact, and don’t automatically cause banks to fail.