Question

Which best describes the effects of low and high interest rates on the economy?

a) Low interest rates encourage consumers to borrow and spend, while high interest rates discourage such behavior.
b) High interest rates discourage consumers from investing, while low interest rates encourage investment.
c) High interest rates encourage consumers to borrow and spend, while low interest rates discourage such behavior.
d) Low interest rates encourage consumers to invest, while high interest rates discourage investment.

Answer 1

The answer would be: A

Answer 2

A) Low interest rates encourage consumers to borrow and spend, while high interest rates discourage such behavior.

If you look at answers B and D, they say exactly the same thing -- the only difference is how the clauses in the sentence are arranged. And the thing they say is wrong. Higher interest rates would encouraging saving and investing.

Answers A and C say opposite things, and A is the one that is correct. Lower interest rates will spur customers and businesses to borrow funds, because repaying the loans will be cheap. But if interest rates run high, borrowing is postponed or not pursued. As Investment News reported (July 25, 2017), "Higher interest rates lead to higher borrowing costs, so mortgages would become more costly and business loan interest rates would rise. Some home buyers might postpone making real estate investments, and small business owners may be disinclined to take on debt."