Question
Which among the following statements is not true when there is an increase in interest rate in an economy ?
Answer: Option B
Answer: (b)
Interest rates increase the cost of borrowing, which results in lesser investment activity and the purchase of consumer durables.
In a low interest-rate environment, shares become a more attractive buy, raising households’ financial assets. This may also contribute to higher consumer spending, and makes companies’ investment projects more attractive.
Lower interest rates also tend to cause currencies to depreciate: Demand for domestic goods rises when imported goods become more expensive. All of these factors raise output and employment as well as investment and consumer spending.
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Answer: (b)
Interest rates increase the cost of borrowing, which results in lesser investment activity and the purchase of consumer durables.
In a low interest-rate environment, shares become a more attractive buy, raising households’ financial assets. This may also contribute to higher consumer spending, and makes companies’ investment projects more attractive.
Lower interest rates also tend to cause currencies to depreciate: Demand for domestic goods rises when imported goods become more expensive. All of these factors raise output and employment as well as investment and consumer spending.
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