Central banks control borrowing via interest rates

Steps:

• Identify the goal: Reduce consumer borrowing by making loans costlier.
• Recall central bank tools: They set benchmark interest rates to influence economy-wide borrowing costs.
• Link to effect: Higher rates increase loan interest, discouraging consumers from borrowing.
• Confirm policy: This is monetary tightening through rate hikes.

Why D is correct:

• Higher interest rates raise the cost of borrowing (per the basic loan formula: Interest = Principal × Rate × Time), making consumers less likely to take loans.

Why the others are wrong:

• A: Central banks don't directly increase commercial bank deposits; they influence reserves via open market operations.
• B: Government spending is fiscal policy, controlled by the government, not the central bank.
• C: Exchange rates are influenced indirectly by rates but aren't directly increased by central banks to curb borrowing.

Final answer: D