Question

Which statement best describes the effects of low and high interest rates on the economy?

Low interest rates encourage consumers to borrow and spend, while high interest rates encourage saving.
High interest rates discourage consumers from investing, while low interest rates encourage investment.
High interest rates encourage consumers to borrow and spend, while low interest rates encourage saving.
Low interest rates encourage consumers to invest, while high interest rates discourage investment.

Answer 1

"Low interest rates encourage consumers to borrow and spend, while high interest rates encourage saving."

Reason: low rates reduce the cost of borrowing and boost consumption and investment, while high rates raise returns to saving and raise borrowing costs, which discourages spending and investment.