If interest rates rise, borrowing tends to become more expensive and saving tends to increase. Which option correctly states this?

• A. Borrowing increases and saving decreases
• B. Borrowing decreases and saving increases
• C. No effect on borrowing or saving
• D. Only borrowing is affected by interest rates

Answer: (B)

Rising interest rates affect both borrowers and savers in opposite ways. When rates go up, the cost of loans increases, so fewer people and businesses want to borrow. At the same time, higher rates raise the return on saved money, making saving more attractive. So the combination is that borrowing tends to fall while saving tends to rise. The option that states borrowing decreases and saving increases matches this pattern. The other possibilities conflict with how higher rates change incentives: borrowing would not typically increase, there is a clear effect on both borrowing and saving, and it isn’t only borrowing that is affected.