Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased consumption and investment leading to higher output
B
Decreased bond prices due to higher demand
C
A decrease in net exports due to a stronger currency
D
Lower inflation rates due to reduced spending
Understanding the Answer
Let's break down why this is correct
Answer
When a central bank lowers interest rates, it usually makes borrowing money cheaper for people and businesses. This encourages them to take out loans to buy homes, invest in new projects, or spend more money. As a result, overall spending in the economy can increase, leading to higher demand for goods and services. For example, if a family decides to buy a new car because the loan is cheaper, that purchase can help car manufacturers and related businesses thrive. Overall, lower interest rates can stimulate economic growth by encouraging more spending and investment.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think lower interest rates mean bond prices go up; People might believe that a lower interest rate makes the currency stronger.
Key Concepts
Interest Rates
Economic Activity
Aggregate Demand
Topic
Interest Rates and Economic Effects
Difficulty
easy level question
Cognitive Level
understand
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