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Consider the following statements

2011

Consider the following statements:
1. An increase in the rate of interest may lead to an increase in the rate of inflation.
2. An increase in the rate of interest may lead to a decrease in the level of investment.
3. An increase in the rate of interest may lead to an increase in the rate of savings.
Which of the statements given above is/are correct?

(a)

1 only

(b)

2 and 3 only

(c)

1 and 2 only

(d)

2 and 3 only

Explanation

Statement 1 is not correct: An increase in interest rates typically leads to decreased inflation. Statement 2 is correct: Higher interest rates can reduce investment due to increased borrowing costs. Statement 3 is correct: Higher interest rates usually encourage savings by providing better returns.