Question

How does lowering interest rates affect supply and demand ?

1.It increases the cost of borrowing. This allows businesses to reduce investments, increasing the supply of goods for consumers to buy.


2.It increases the cost of borrowing for businesses but not consumers. This makes it more costly for businesses to create new jobs, but it increases consumer demand.


3.It has no effect on interest rates, consumer demand, or the ability of businesses to supply goods. Interest rate levels are unrelated to borrowing decisions by businesses and consumers.


4.It reduces the cost of borrowing. This increases demand, because consumers can spend more by using credit.

Answer 1

The correct answer is:

It reduces the cost of borrowing. This increases demand, because consumers can spend more by using credit.
Lowering interest rates reduces the cost of borrowing for both businesses and consumers. When interest rates are lower, it becomes cheaper to take out loans and use credit to make purchases. This increase in affordability encourages consumers to spend more, which in turn increases demand for goods and services.

Lower interest rates also incentivize businesses to invest and expand their operations. With cheaper access to credit, businesses can borrow money at a lower cost to fund projects, such as expanding production capacity or investing in new technology. This increased investment can lead to an increase in the supply of goods and services available in the market.

Overall, lowering interest rates stimulates both consumer demand and the ability of businesses to supply goods, as it reduces the cost of borrowing and encourages spending and investment.

I hope this helps! :)

Answer 2

4. It reduces the cost of borrowing. This increases demand because consumers can spend more by using credit.

Step-by-step explanation:

When interest rates are lowered, it becomes cheaper for businesses and consumers to borrow money. This can lead to increased investment and spending, which can boost economic growth.

For businesses, lower interest rates can make it more affordable to finance new projects and expansions. This can lead to increased production and hiring, which can create jobs and boost economic activity.

For consumers, lower interest rates can make it more affordable to finance big-ticket items like cars and homes. This can lead to increased spending, which can also boost economic growth.

Of course, there are also some potential downsides to lowering interest rates. For example, lower interest rates can make it more difficult for savers to earn a return on their money. Additionally, lower interest rates can make it easier for people to take on too much debt, which can lead to financial problems in the future.

Overall, the impact of lowering interest rates on supply and demand is complex and depends on a variety of factors. However, in general, lower interest rates can lead to increased investment and spending, which can boost economic growth.