Central banks control borrowing via interest rates

Steps:

• Identify the goal: reduce consumer borrowing by making loans costlier.
• Recall central bank tools: monetary policy adjusts interest rates to influence economy.
• Link to borrowing: higher rates increase loan costs for consumers.
• Select matching option: increasing interest rates directly achieves this.

Why D is correct:

• Per the interest rate channel of monetary policy, raising the policy rate increases borrowing costs, discouraging consumer loans as defined in standard economic transmission mechanisms.

Why the others are wrong:

• A: Central banks influence reserves, not directly commercial deposits, which are bank liabilities.
• B: Government spending is fiscal policy, controlled by government, not central banks.
• C: Exchange rates are influenced indirectly but not a primary tool for domestic borrowing control.

Final answer: D