Final answer:
The statement that lower interest rates encourage borrowing and spending is correct. Low interest rates promote economic activity by making loans cheaper, while high interest rates have the opposite effect, though inflation and interest rates can be influenced by several factors, not only by borrowing and spending patterns.
Step-by-step explanation:
The correct statement concerning interest rates is B: Lower interest rates encourage borrowing and spending. When interest rates are low, businesses and individuals are more inclined to borrow money for investment and consumption, which includes spending on homes, cars, and other goods. This increased borrowing and spending can lead to a rise in Gross Domestic Product (GDP) and employment levels. Conversely, higher interest rates make borrowing more expensive, which tends to reduce both investment by businesses and consumption by households, thus negatively impacting economic activities.
It's important to note that although government policies can influence interest rates, they are not the sole determinants. Market factors, the economic outlook, and central bank policies also play significant roles in determining interest rates.
Finally, while higher interest rates sometimes contribute to lower inflation by reducing spending and borrowing, this is not always the case as other factors may impact inflation as well.