Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased borrowing costs → Decrease in aggregate demand → Higher unemployment
B
Lower interest rates → Increased borrowing → Higher consumer spending → Increase in aggregate demand
C
Decreased consumer confidence → Lower interest rates → Increase in investment → Higher unemployment
D
Higher interest rates → Increased savings → Decrease in consumer spending → Lower aggregate demand
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 both people and businesses. This means that loans for things like homes and cars cost less, encouraging more people to borrow and spend. As businesses find it easier to get loans, they may invest in new projects or hire more workers, which can lead to job creation. For example, if a company can take a loan at a lower rate, it might decide to expand its factory, creating more jobs in the community. Overall, these actions can help boost economic growth by increasing spending and investment.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because This option suggests that lower rates lead to higher borrowing costs, which is the opposite of what happens; This option mixes up the order of events.
Key Concepts
Monetary Policy
Aggregate Demand
Cyclical Unemployment
Topic
Effects of Lower Interest Rates
Difficulty
medium level question
Cognitive Level
understand
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