Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It tends to decrease inflation
B
It tends to stabilize inflation
C
It tends to increase inflation
D
It has no effect on inflation
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates are lower, borrowing money becomes cheaper for people and businesses. This encourages them to take out loans to buy things like homes, cars, or to invest in their companies. As more money is spent in the economy, demand for goods and services increases, which can lead to higher prices. For example, if many people buy new cars because loans are affordable, car manufacturers may raise prices due to the increased demand. This overall increase in spending and demand can cause inflation to rise.
Detailed Explanation
Lower interest rates make borrowing cheaper. Other options are incorrect because Some might think lower rates mean less spending, but that's not true; Stabilizing inflation sounds good, but lower rates usually lead to more spending.
Key Concepts
inflation
Topic
Effects of Lower Interest Rates
Difficulty
easy level question
Cognitive Level
understand
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