True or False QuestionTrue or false: Interest rates are rationing devices.True false question.TrueFalse

Explanation of the Statement

1. Understanding Interest Rates: Interest rates represent the cost of borrowing money. They play a critical role in determining how much it costs to take out loans or how much can be earned from savings.

2. Function of Rationing Devices: Rationing devices are mechanisms that control the distribution of scarce resources. They help allocate resources where they are most valued.

3. Role of Interest Rates: When interest rates rise, borrowing becomes more expensive, which can lead to a decrease in demand for loans. Conversely, lower interest rates make borrowing cheaper, increasing demand.

4. Conclusion: As interest rates adjust, they effectively help distribute financial resources by influencing the behavior of borrowers and lenders.

Final Answer

True: Interest rates serve as rationing devices by influencing the allocation of funds in the economy through their effects on borrowing and lending behavior.