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

Answer 1

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

Explanation: Lower rates reduce the cost of borrowing and the return to saving, so they boost consumption and investment. Higher rates raise borrowing costs and increase returns to saving, so they tend to reduce spending/investment and encourage saving.