Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased borrowing leads to higher consumer spending
B
Higher interest rates reduce consumer spending
C
Lower interest rates cause inflation to rise immediately
D
Decreased borrowing reduces aggregate demand
Understanding the Answer
Let's break down why this is correct
Answer
When a central bank lowers interest rates during a recession, it makes borrowing money cheaper for businesses and consumers. This encourages people to take loans to buy homes, cars, or invest in businesses, which increases spending in the economy. For example, if a small business can borrow money at a lower rate, it might decide to expand and hire more workers, creating jobs. As more money circulates and people spend, overall economic activity can start to improve. Therefore, lowering interest rates is a way to stimulate the economy and help it recover from a recession.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think that higher interest rates are needed to boost spending; It's a common belief that lower rates cause prices to rise quickly.
Key Concepts
Expansionary Monetary Policy
Aggregate Demand
Interest Rates
Topic
Expansionary Monetary Policy
Difficulty
easy 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.