Which circumstance is most likely to cause interest rates to increase?

Interest rates typically increase when there is a tight money supply in the economy. A tight money supply occurs when the central bank (such as the Federal Reserve in the United States) restricts the availability of money and credit. This can happen through various actions, including raising reserve requirements for banks, increasing the discount rate, or selling government securities. When the money supply is limited, banks have fewer funds to lend, leading to higher borrowing costs for consumers and businesses, which is reflected in increased interest rates.

In contrast, scenarios like an economic recession and low inflation generally lead to reduced demand for borrowing and lower interest rates, as the central bank may take measures to stimulate economic activity. Consistent investment spending could suggest a healthy economy, but it does not necessarily create upward pressure on interest rates without a concurrent restriction in the money supply. Thus, a tight money supply is the most direct and clear factor leading to increased interest rates.