Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases business investment, leading to accelerated economic growth.
B
It decreases business investment, resulting in stagnation of economic growth.
C
It has no impact on business investment, thus leaving economic growth unchanged.
D
It leads to an increase in savings, which inhibits business investment and economic growth.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates are reduced, borrowing money becomes cheaper for businesses. This means that companies can take out loans at lower costs to invest in new projects, expand their operations, or buy new equipment. For example, if a business wants to build a new factory, lower interest rates make it less expensive to finance that project, encouraging them to go ahead with it. As businesses invest more, they create jobs and increase production, which can lead to overall economic growth. Therefore, during an expansionary policy phase, lower interest rates can boost business investment and help the economy grow more quickly.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper for businesses. Other options are incorrect because Some might think lower interest rates make businesses less willing to invest; It's a common belief that interest rates don't affect investment.
Key Concepts
interest rates
business investment
economic growth
Topic
Expansionary Policy and Investment
Difficulty
hard level question
Cognitive Level
understand
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