Explain whether the Federal Reserve reducing interest rates helps to expand economic growth.
A. Reducing interest rates does not help the economy expand because prices of goods and services decrease from reduced demand.
B.Reducing interest rates helps the economy expand because businesses earn a greater return on their savings, leading to additional spending and economic growth.
C.Reducing interest rates helps the economy expand because it lowers the cost
• of borrowing for business to expand, leading to more jobs and economic growth.
D.Reducing interest rates does not help the economy expand because business save instead of spend with low interest rate, slowing economic growth.
C. Reducing interest rates helps the economy expand because it lowers the cost of borrowing for businesses to expand, leading to more jobs and economic growth.
By reducing interest rates, the Federal Reserve encourages businesses to borrow and invest in their operations. With lower borrowing costs, businesses are more likely to take out loans to expand their operations, invest in new equipment or technology, or hire more employees. These actions stimulate economic growth by increasing business activity and creating job opportunities.
Additionally, when businesses expand, they often require goods and services from other businesses, leading to increased demand and economic activity throughout the supply chain. This multiplier effect further boosts economic growth.
Moreover, when interest rates are lowered, consumers tend to benefit as well. Reduced interest rates lead to lower borrowing costs for individuals, making it more affordable for them to take out loans for purchases such as homes, cars, or education. This increased consumer expenditure also contributes to economic growth.
Overall, reducing interest rates helps to stimulate economic growth by making it more attractive and affordable for businesses and consumers to borrow and spend, leading to increased investment, job creation, and overall economic activity.