gs1medium

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

  1. A.decrease the consumption expenditure in the economy.
  2. B.increase the tax collection of the Government
  3. C.increase the investment expenditure in the economy
  4. D.increase the total savings in the economy
▶ Answer & Explanation

Correct answer: C. increase the investment expenditure in the economy

A lower interest rate reduces the cost of borrowing for businesses and individuals. This incentivizes firms to undertake new investment projects that were previously unviable due to higher financing costs. Consequently, investment expenditure in the economy tends to rise.

Source: UPSC gs1 2014

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