Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It encourages borrowing, increasing aggregate demand.
B
It leads to higher savings rates among consumers.
C
It results in reduced government's ability to spend.
D
It causes inflation to rise 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 businesses and consumers. This means that people are more likely to take out loans to buy homes, cars, or start new businesses, which can help stimulate economic activity. For example, if a small business can borrow money at a lower interest rate, it might invest in new equipment or hire more workers, leading to job creation. Additionally, lower interest rates can encourage people to spend more rather than save, which can help boost demand for goods and services. Overall, this expansionary monetary policy aims to support the economy by increasing spending and investment during a recession.
Detailed Explanation
Lowering interest rates makes loans cheaper. Other options are incorrect because Some might think lower rates mean people save more; It's a common belief that lower rates hurt government spending.
Key Concepts
Expansionary Monetary Policy
Aggregate Demand
Economic Recession
Topic
Expansionary Monetary Policy
Difficulty
medium level question
Cognitive Level
understand
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