HomeQuestionsEconomicsEffects of Lower Interest Rates
📚 Learning Guide
Effects of Lower Interest Rates
medium

If the central bank lowers interest rates, which effect is most likely to occur in the short run?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Increased borrowing leads to higher aggregate demand

B

Decreased consumer spending due to uncertainty

C

Higher interest rates attract foreign investment

D

Inflation rates will drop immediately

Understanding the Answer

Let's break down why this is correct

Answer

When a central bank lowers interest rates, it makes borrowing money cheaper for individuals and businesses. This means that people are more likely to take out loans for things like buying a house or starting a new business. As more people borrow money, they tend to spend more, which can lead to increased economic activity. For example, if a family decides to take a loan to renovate their home, they will hire contractors and buy materials, which helps create jobs and boosts the economy. Overall, in the short run, lower interest rates usually lead to more spending and investment, helping to stimulate economic growth.

Detailed Explanation

When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think lower rates cause people to worry and spend less; It's a common belief that higher interest rates attract foreign money.

Key Concepts

Monetary Policy
Aggregate Demand
Cyclical Unemployment
Topic

Effects of Lower Interest Rates

Difficulty

medium 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.

Start Learning with SeekhExplore More Effects of Lower Interest Rates Questions