Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased consumption and investment due to lower borrowing costs
B
Decreased net exports as foreign investors withdraw
C
Higher price levels due to reduced market supply
D
Increased inflation leading to higher interest rates in the future
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 that people are more likely to take out loans to buy homes, cars, or start new businesses, which can lead to increased spending in the economy. For example, if a family decides to buy a new house because the mortgage rates are low, they will spend money on the house and related services, stimulating job creation in construction and real estate. Additionally, businesses might invest in new projects or equipment because they can borrow money at lower costs, leading to growth and more jobs. Overall, lower interest rates can encourage more spending and investment, which helps the economy grow.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think that lower interest rates scare off foreign investors; It's a common mistake to think lower rates mean less supply.
Key Concepts
Interest Rates
Economic Activity
Monetary Policy
Topic
Interest Rates and Economic Effects
Difficulty
medium level question
Cognitive Level
understand
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