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📈 EconomyMacroeconomics

If the interest rate is decreased in an economy, it will: (UPSC Prelims 2014)

aDecrease the consumption expenditure in the economy
bIncrease the consumption expenditure in the economy
cIncrease the investment expenditure in the economy
dIncrease the total savings in the economy
✓ Correct answer: c) Increase the investment expenditure in the economy
ExplanationAns: C Exp: Effects of Decreased Interest Rates on Money Supply and Investment Expenditure: A decrease in interest rates within an economy tends to prompt individuals to deposit less money in banks due to lower returns, while also encouraging increased borrowing at more favorable rates.Consequently, this dynamic leads to a rise in the overall money supply.This influx of available funds facilitates greater investment expenditure.Lower interest rates provide banks with increased flexibility to extend loans to both businesses and consumers, enabling the purchase of household goods and investment in productive ventures.(Hence, Option C is correct)

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