Which of the following is a consequence of decreased interest rates?

Which of the following is a consequence of decreased interest rates?

• A. Higher mortgage costs for consumers
• B. Increased consumer spending and borrowing
• C. Slower economic growth
• D. Higher unemployment rates

Answer: (B)

Decreased interest rates typically encourage increased consumer spending and borrowing because lower rates make loans cheaper. When banks and financial institutions lower interest rates, the cost of borrowing decreases, which means consumers can take out loans—such as mortgages, car loans, or personal loans—more affordably. This leads to a greater willingness to spend, as individuals and families may feel more confident in making large purchases and investments with lower monthly payments and interest burdens. Additionally, businesses are also incentivized to borrow for expansion or investment due to the lower cost of financing. In contrast, scenarios such as higher mortgage costs, slower economic growth, or increased unemployment are generally associated with higher interest rates. High rates tend to suppress consumer spending and borrowing because the cost of taking on debt rises, leading to decreased economic activity. Consequently, with lower rates, economic activity is stimulated, which is why the involvement of increased consumer spending and borrowing aligns with the effects of decreased interest rates.

Decreased interest rates typically encourage increased consumer spending and borrowing because lower rates make loans cheaper. When banks and financial institutions lower interest rates, the cost of borrowing decreases, which means consumers can take out loans—such as mortgages, car loans, or personal loans—more affordably. This leads to a greater willingness to spend, as individuals and families may feel more confident in making large purchases and investments with lower monthly payments and interest burdens. Additionally, businesses are also incentivized to borrow for expansion or investment due to the lower cost of financing.

In contrast, scenarios such as higher mortgage costs, slower economic growth, or increased unemployment are generally associated with higher interest rates. High rates tend to suppress consumer spending and borrowing because the cost of taking on debt rises, leading to decreased economic activity. Consequently, with lower rates, economic activity is stimulated, which is why the involvement of increased consumer spending and borrowing aligns with the effects of decreased interest rates.