UPSC Exam > UPSC Questions > If the interest rate is decreased in an econo...
Start Learning for Free
If the interest rate is decreased in an economy, it will
- a)Decrease the consumption expenditure in the economy
- b)increase the tax collection of the Government
- c)increase the investment expenditure in the economy
- d)increase the total savings in the economy
Correct answer is option 'C'. Can you explain this answer?
| FREE This question is part of | Download PDF Attempt this Test |
Most Upvoted Answer
If the interest rate is decreased in an economy, it willa)Decrease the...
Decrease in interest rate and its impact on the economy
Interest rate is one of the most important tools that the Central Bank uses to regulate the economy. A decrease in interest rate can have several effects on the economy, which are discussed below:
Increase in investment expenditure
- A decrease in interest rate makes borrowing cheaper for firms and individuals. As a result, firms are more likely to invest in new projects, expand their existing businesses, and purchase new equipment. This increase in investment expenditure can create new job opportunities and increase the overall economic growth of the country.
Increase in disposable income
- A decrease in interest rate can also lead to lower mortgage rates, which can make housing more affordable for people. This can lead to an increase in disposable income, which can be spent on other goods and services. This can lead to an increase in overall consumption expenditure in the economy.
Increase in inflation
- A decrease in interest rate can lead to an increase in inflation. This is because, with cheaper borrowing costs, people are more likely to take out loans and spend more money. This increased demand can lead to an increase in prices, which can lead to higher inflation rates.
Increase in government spending
- A decrease in interest rate can lead to an increase in government spending. This is because, with cheaper borrowing costs, the government can borrow more money at a lower cost. This can lead to an increase in government spending on infrastructure projects, social welfare programs, and other initiatives.
Conclusion
In conclusion, a decrease in interest rate can have several impacts on the economy. It can lead to an increase in investment expenditure, an increase in disposable income, an increase in inflation, and an increase in government spending. However, the overall impact of a decrease in interest rate depends on the state of the economy and the specific policies implemented by the government.
Interest rate is one of the most important tools that the Central Bank uses to regulate the economy. A decrease in interest rate can have several effects on the economy, which are discussed below:
Increase in investment expenditure
- A decrease in interest rate makes borrowing cheaper for firms and individuals. As a result, firms are more likely to invest in new projects, expand their existing businesses, and purchase new equipment. This increase in investment expenditure can create new job opportunities and increase the overall economic growth of the country.
Increase in disposable income
- A decrease in interest rate can also lead to lower mortgage rates, which can make housing more affordable for people. This can lead to an increase in disposable income, which can be spent on other goods and services. This can lead to an increase in overall consumption expenditure in the economy.
Increase in inflation
- A decrease in interest rate can lead to an increase in inflation. This is because, with cheaper borrowing costs, people are more likely to take out loans and spend more money. This increased demand can lead to an increase in prices, which can lead to higher inflation rates.
Increase in government spending
- A decrease in interest rate can lead to an increase in government spending. This is because, with cheaper borrowing costs, the government can borrow more money at a lower cost. This can lead to an increase in government spending on infrastructure projects, social welfare programs, and other initiatives.
Conclusion
In conclusion, a decrease in interest rate can have several impacts on the economy. It can lead to an increase in investment expenditure, an increase in disposable income, an increase in inflation, and an increase in government spending. However, the overall impact of a decrease in interest rate depends on the state of the economy and the specific policies implemented by the government.
Free Test
FREE
| Start Free Test |
Community Answer
If the interest rate is decreased in an economy, it willa)Decrease the...
(Correct Answer:- C)
Lowering interest rates makes borrowing money cheaper. This encourages consumer and business spending and investment and can boost asset prices.
Lowering interest rates makes borrowing money cheaper. This encourages consumer and business spending and investment and can boost asset prices.
Attention UPSC Students!
To make sure you are not studying endlessly, EduRev has designed UPSC study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in UPSC.
|
Explore Courses for UPSC exam
|
|
Similar UPSC Doubts
Top Courses for UPSCView all
If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer?
Question Description
If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer?.
If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer?.
Solutions for If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
Download more important topics, notes, lectures and mock test series for UPSC Exam by signing up for free.
Here you can find the meaning of If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer?, a detailed solution for If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? has been provided alongside types of If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice If the interest rate is decreased in an economy, it willa)Decrease the consumption expenditure in the economyb)increase the tax collection of the Governmentc)increase the investment expenditure in the economyd)increase the total savings in the economyCorrect answer is option 'C'. Can you explain this answer? tests, examples and also practice UPSC tests.
|
|
Explore Courses for UPSC exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup