How did lower interest rates help economic growth?

Expert Solution

Ans.)1.) The lower the interest rate, the more willing people are to borrow money to make big purchases such as houses or cars. When consumer pay less interest, this gives them more money to spend which can create a ripple effect of increased spending throughout the economy. This tends to encourage spending and investment which leads to higher aggregate demand (AD) and economic growth.

2.) It created opportunities to reduce personal and government debt.

3.) It allowed businesses to increase benefits and wages for employees.

4.) It helped people borrow money to use to purchase products and services.

5.) It forced the government to increase spending on federal and state projects.

This is how lower interest rates help in economic growth.

Rahul Sunny answered 2 years ago

"Higher interest rates lower equilibrium real GDP and thus slow the rate of economic growth." Critique...

"Higher interest rates lower equilibrium real GDP and thus slow the rate of economic growth." Critique (and explain the underlying basis for) this quote noting whether it is true all of the time or only some of the time.

Lower reserves requirements, lead to a in interest rates and a/an in the money...

Lower reserves requirements, lead to a ________ in interest rates and a/an ________ in the money supply. fall; increase rise; decrease fall; decrease Which of the following actions by the Fed will increase the money supply? increasing the reserve requirement and buying bonds. lowering the reserve requirement and selling bonds. lowering the discount rate and the selling bonds. If the Central Bank observes aggregate demand weakening it will undertake expansionary monetary policy. contractionary monetary policy. no action. Considering how monetary...

How did Financial System Development has promoted Economic Growth in Mauritius??

7. Explain David Ricardo’s theory of income distribution and economic growth. How and why did economic...

7. Explain David Ricardo’s theory of income distribution and economic growth. How and why did economic growth, in the absence of international trade, lead to changing shares of wages, rent and profit? How would these shares change? Why? What would happen to the economy, in the long run, according to this theory? Explain briefly.

1-Inflation, slow economic growth, and volatile interest rates are economic outcomes reflected in which of the following components of a security's return?

1-Inflation, slow economic growth, and volatile interest rates are economic outcomes reflected in which of the following components of a security's return? A)Systematic risk B)Unsystematic risk C)Diversifiable risk D)Company-specific risk 2-What is an asset's expected rate of return if the current risk-free rate is 5%, the stock has a beta of 1.4, and the quoted market rate is 9%? A)10.6% B)5.6% C)0.11% D)0.05% 3-As investors become more confident about future economic prospects, the SML: A)Shifts downward but remains parallel...

Did International Production Networks (IPNs) facilitate economic growth in Asia? If so how and are they...

Did International Production Networks (IPNs) facilitate economic growth in Asia? If so how and are they still relevant? Address these questions with the use of valid real-life examples in your answer.

Evidence shows that interest rates are procyclical (interest rates rise during economic expansions, and fall during...

Evidence shows that interest rates are procyclical (interest rates rise during economic expansions, and fall during economic contractions). Explain the statement above using either the S & D for Bonds or the S & D for Credit model in your answer, showing (you need to provide a drawing or graph with the axes properly labeled and equilibrium identified) what happens to the price of bonds, the quantity of bonds and interest rates both during an expansion and during a contraction.

Discuss how the Federal reserve Bank influences economic activity, touch on interest rates

How did the real interest rates paid on long-term government debt in Canada and the United...

How did the real interest rates paid on long-term government debt in Canada and the United States compare with each other over the period from 1984 to 2015? Select one: a. The average real interest rate was 3.4 percent in Canada and 4.4 percent in the United States. b. The average real interest rate was 3.7 percent in Canada and 3.0 percent in the United States. c. The average real interest rate was 6.7 percent in Canada and 5.7 percent...

why are interest rates so important to economic activity?

Question