Lowering interest rates is a common monetary policy tool used to; A. stimulate e
ID: 1202159 • Letter: L
Question
Lowering interest rates is a common monetary policy tool used to;
A. stimulate economic growth.
B.lower inflation.
C.decrease government borrowing costs.
D.none of these
Lower interest rates can also;
A.push prices lower.
B.push prices higher.
C.lead to stagnation.
D.none of these
When central banks increase the money supply and takes steps to lower interest rates it is known as;
A.expansionary monetary policy.
B.an inflation hawk stance.
C.contractionary monetary policy.
D.expansionary fiscal policy.
When Governements increase expenditures it is known as;
A.expansionary fiscal policy.
B.Contractionary fiscal policy.
C.contractionary monetary policy.
D.expansionary monetary policy.
Explanation / Answer
Monetary policy is a measure used by government to control disequilibrium in commodity and money market of the economy. In this policy government will change the supply of money to create such impact. At the time of changing this policy government sometimes lowers the interest rate. As you know interest is paid against money borrowed from lender. It is the cost of borrowing money. If interest rate is lowered, then loan is available at cheap rate. It will induce investors to borrow more money and invest in the business. Thus investment will rise. Production of the economy will increase. National income will rise. Thus economy will grow.
Answer: Correct option is (a). Lowering of inteest stimulates economic growth.
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Lowering of interest will also push price lower. It will increase production of the economy. As more supply of goods are available, price will decrease. Consumers will be benefitted. They can enjoy more commodities at cheap rate.
Answer: Option A is correct.
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When central bank increases money supply and lowers the interest rate, it is known as expansionary monetary policy. By increasing supply of money, more money is injected into the economy. So to increase the investment of such extra money, investors are induced to invest more. Now they can take loan easiliy at lower rate of interest. So economy will grow. In other words, economy will expand:
Answer: Option A is correct.
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Increase in government expenditure will mean increase in government investment. It is a components of demand of commodities. Commodities are demanded for consumption and investment. So increase in expenditure of government will mean budget of the government will change. This investment rise will create a multiplier positive effect on national income. It will increase more than the increase in investment. Thus increase in government expenditure is known as expansionary fiscal policy.
Answer: OIption A is correct.
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