📚 Learning Guide
Effects of Lower Interest Rates
easy

Lower interest rates are to increased borrowing as expanded government spending is to what?

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Learning Path

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Choose the Best Answer

A

Decreased aggregate demand

B

Increased consumption

C

Higher unemployment

D

Increased taxes

Understanding the Answer

Let's break down why this is correct

Answer

Lower interest rates make it cheaper for people and businesses to borrow money. When borrowing becomes easier, more individuals may take out loans to buy homes or start new businesses, leading to increased spending in the economy. Similarly, when the government expands its spending, it injects more money into the economy, which encourages businesses to invest and hire more workers. This increased government spending can lead to greater demand for goods and services, just like lower interest rates lead to more borrowing. For example, if the government builds a new road, construction workers get jobs, and they spend their earnings on groceries and other necessities, stimulating economic growth.

Detailed Explanation

When the government spends more money, it puts cash into the economy. Other options are incorrect because Some might think that more government spending would lead to less demand; It's a common mistake to think that spending less leads to more jobs.

Key Concepts

Monetary policy effects
Fiscal policy effects
Aggregate demand dynamics
Topic

Effects of Lower Interest Rates

Difficulty

easy level question

Cognitive Level

understand

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