Question : When the general interest rate reaches a low level, which of the following statements will be correct?
Option 1: Most people will expect the interest rate to rise in the future.
Option 2: Most people will prefer to hold bonds.
Option 3: Most people will speculate a further decline in the rate of interest.
Option 4: Any increase in the money supply will cause the interest rate to fall further.
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Correct Answer: Most people will expect the interest rate to rise in the future.
Solution : The correct answer is Most people will expect the interest rate to rise in the future .
When the general interest rate reaches a low level, the correct statement among the options is most people will expect the interest rate to rise. This expectation is based on the typical economic cycle and the assumption that interest rates are low to stimulate economic activity. As economic conditions improve, there may be an anticipation that central banks will raise interest rates to prevent inflation or to normalize monetary policy.
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