Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased borrowing leading to higher consumer spending
B
Decreased investment due to uncertainty
C
Lower aggregate demand as savings increase
D
Higher unemployment because businesses cut costs
Understanding the Answer
Let's break down why this is correct
Answer
When the central bank decreases interest rates, it makes borrowing money cheaper for everyone. This means that consumers and businesses are more likely to take out loans to buy things like cars, homes, or to invest in new projects. As a result, spending in the economy increases, which can lead to more jobs and higher demand for goods and services. For example, if a small business can borrow money at a lower interest rate, it might decide to expand its operations, hire more workers, and buy new equipment. Overall, in the short run, lower interest rates typically boost economic activity and encourage growth.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think lower rates create uncertainty, but they actually make borrowing easier; It's a common belief that lower rates mean people save more, but they often spend instead.
Key Concepts
Effects of Lower Interest Rates
Aggregate Demand
Cyclical Unemployment
Topic
Effects of Lower Interest Rates
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.