Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Lower interest rates → Increase borrowing → Boost aggregate demand → Economic recovery
B
Increase interest rates → Decrease borrowing → Lower aggregate demand → Economic slowdown
C
Maintain interest rates → Stabilize borrowing → Decrease aggregate demand → Economic stagnation
D
Raise interest rates → Encourage saving → Increase aggregate demand → Inflation rise
Understanding the Answer
Let's break down why this is correct
Answer
When a central bank decides to use expansionary monetary policy during a recession, it starts by lowering interest rates. Lower interest rates make borrowing money cheaper for businesses and consumers, encouraging them to spend more. As people and companies borrow and spend, demand for goods and services increases, which can help businesses grow and hire more workers. For example, if a bank lowers the interest rate, a family might decide to take out a loan to buy a new home, stimulating the housing market. Overall, this process aims to boost economic activity and help the economy recover from the recession.
Detailed Explanation
When a central bank lowers interest rates, it makes borrowing cheaper. Other options are incorrect because This option suggests raising interest rates, which actually makes borrowing more expensive; This option talks about keeping interest rates the same, which doesn't help during a recession.
Key Concepts
Expansionary Monetary Policy
Aggregate Demand
Economic Recovery
Topic
Expansionary Monetary Policy
Difficulty
medium level question
Cognitive Level
understand
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