Canada Mortgage Professionals Exam 2025 – 400 Free Practice Questions to Pass the Exam

The correct response identifies high circulation of money as a key economic condition that can lead to inflation impacting interest rates. When there is a significant increase in the money supply, it typically means that there are more currency units available in the economy. This can lead to consumers and businesses having more cash to spend, which tends to increase demand for goods and services.

As demand rises, prices often increase, leading to inflation. In response to rising inflation, central banks might increase interest rates to curb spending and borrowing, seeking to stabilize the economy. Higher interest rates typically make borrowing more expensive, which can help slow down economic activity and, in turn, reduce inflation.

The other conditions listed do not directly correlate to the mechanism through which inflation affects interest rates in the same way. High unemployment rates generally suggest a weakened economy, which would typically lead to decreased inflation or deflation, rather than inflation rising to necessitate higher interest rates. Stable prices mean there is no inflation or deflation, leaving interest rates unaffected. Decreased consumer spending could also lead to lower inflation as demand weakens, which similarly would not drive interest rates higher. Thus, high circulation of money stands out as the primary condition that can drive inflation and subsequently lead to changes in interest rates.