Question
GSMediumPrelims 2014Economy

If the interest rate is decreased in an economy, it will

Explanation

  • Lower Interest rates encourage additional investment spending , which gives the economy a boost in times of slow economic growth.

  • Changes in interest rates affect the public's demand for goods and services and, thus, aggregate investment spending.

  • A decrease in interest rates lowers the cost of borrowing, which encourages businesses to increase investment spending.

  • Lower interest rates also give banks more incentive to lend to businesses and households, allowing them to spend more.

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