Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases consumer spending and economic growth.
B
It encourages consumer borrowing and increases economic activity.
C
It has no significant impact on consumer behavior.
D
It leads to higher savings and reduced consumer spending.
Understanding the Answer
Let's break down why this is correct
Answer
When a central bank lowers interest rates, it makes borrowing money cheaper for consumers and businesses. This means that loans for things like cars, homes, or starting a business become more affordable, encouraging people to spend more. For example, if a family can get a mortgage at a lower interest rate, they might decide to buy a new house, which stimulates the housing market and creates jobs in construction. As more people spend money, businesses see higher sales and may hire more workers, leading to overall economic growth. Therefore, lower interest rates can help boost consumer confidence and increase spending, which is good for the economy.
Detailed Explanation
When interest rates go down, borrowing money becomes cheaper. Other options are incorrect because Some might think that lower rates mean less spending; It's a common belief that interest rates don't change how people spend.
Key Concepts
monetary policy
interest rate manipulation
Topic
Interest Rates and Economic Impact
Difficulty
medium level question
Cognitive Level
understand
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