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

• decrease the consumption expenditure in the economy
• increase the tax collection of the Government
• increase the investment expenditure in the economy
• increase the total savings in the economy

Answer: (c) increase the investment expenditure in the economy

Notes:

• If the interest rate is decreased in an economy, people will deposit less money in the banks since they would not get high returns and borrow more money with a low-interest rate, hence money supply in the economy will increase.
• Decrease in interest rate in an economy will increase the money supply, thus increasing the investment expenditure. With low interest rates, the banks will have more leverage to lend money to businesses and to citizens to purchase household items or to invest in productive things.