Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher interest rates generally decrease borrowing costs and increase savings rates, leading to expansionary fiscal policy.
B
Lower interest rates typically increase borrowing costs while reducing savings rates, which can lead to contractionary fiscal policy.
C
Higher interest rates increase borrowing costs and decrease savings rates, often prompting tighter fiscal policies.
D
Lower interest rates decrease borrowing costs and encourage savings, allowing for more expansive fiscal policies.
Understanding the Answer
Let's break down why this is correct
Answer
Changes in interest rates directly affect how much it costs to borrow money and how much people earn from their savings. When interest rates go up, borrowing becomes more expensive because lenders charge more for loans, which can make people think twice about taking out a mortgage or a car loan. At the same time, higher interest rates mean that savings accounts can earn more money, encouraging people to save rather than spend. Conversely, if interest rates go down, borrowing costs decrease, making it easier for people to take loans, but savings may earn less. Fiscal policy, like government spending and tax changes, can influence interest rates by affecting overall economic activity; for example, if the government spends more, it can boost the economy, which might lead to higher interest rates.
Detailed Explanation
When interest rates are low, borrowing money becomes cheaper. Other options are incorrect because This option suggests that higher rates lower borrowing costs, which is incorrect; This option says lower rates increase borrowing costs, but that's the opposite of what happens.
Key Concepts
borrowing costs
savings rates
fiscal policy
Topic
Interest Rates and Economic Impact
Difficulty
hard level question
Cognitive Level
understand
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