Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It would decrease consumption and investment, leading to lower aggregate demand.
B
It would increase consumption and investment, resulting in higher aggregate demand.
C
It would have no effect on net exports, leaving aggregate demand unchanged.
D
It would only affect bond prices, with no impact on real income.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates decrease, borrowing money becomes cheaper for both individuals and businesses. This means people are more likely to take out loans to buy homes, cars, or start new projects, which increases spending. For example, if a family decides to buy a new house because the mortgage rates are low, they will spend more money, which boosts demand for construction and related services. As businesses also invest more due to lower borrowing costs, they can grow and hire more workers, leading to more income and spending in the economy. Overall, lower interest rates can stimulate aggregate demand, which helps the economy grow.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think lower interest rates mean less spending; It's a common mistake to think interest rates only affect local markets.
Key Concepts
Interest Rates
Aggregate Demand
Economic Activity
Topic
Interest Rates and Economic Effects
Difficulty
hard level question
Cognitive Level
understand
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