{"id":91200,"date":"2025-06-01T10:49:04","date_gmt":"2025-06-01T10:49:04","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=91200"},"modified":"2025-06-01T10:49:04","modified_gmt":"2025-06-01T10:49:04","slug":"if-the-interest-rate-is-decreased-in-an-economy-it-will","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/if-the-interest-rate-is-decreased-in-an-economy-it-will\/","title":{"rendered":"If the interest rate is decreased in an economy, it will"},"content":{"rendered":"

If the interest rate is decreased in an economy, it will<\/p>\n

[amp_mcq option1=”decrease the consumption expenditure in the economy” option2=”increase the tax collection of the Government” option3=”increase the investment expenditure in the economy” option4=”increase the total savings in the economy” correct=”option3″]<\/p>\n

\n
\n
This question was previously asked in<\/div>\n
UPSC IAS – 2014<\/div>\n<\/div>\n
Download PDF<\/a>Attempt Online<\/a><\/div>\n<\/div>\n
\nA decrease in the interest rate makes borrowing money cheaper.
\nA) decrease the consumption expenditure: Lower interest rates generally make it cheaper for consumers to borrow for purchases (like vehicles, homes) or to use credit, which tends to *increase* consumption expenditure, not decrease it. Also, lower returns on savings encourage spending.
\nB) increase the tax collection of the Government: While stimulating economic activity might eventually lead to higher tax collection, this is an indirect and not the most direct or immediate effect of a decreased interest rate.
\nC) increase the investment expenditure in the economy: Businesses often borrow money to finance investments in capital goods, expansion, research, etc. A lower interest rate reduces the cost of borrowing, making more investment projects financially viable and thus encouraging businesses to increase investment expenditure. This is a primary channel through which monetary policy (via interest rates) affects the economy.
\nD) increase the total savings in the economy: A lower interest rate means a lower return on savings. This makes saving less attractive relative to spending or investing, potentially leading to a *decrease* in the rate of saving or total savings, not an increase.
\n<\/section>\n
\n– Interest rates represent the cost of borrowing and the return on saving.
\n– Lower interest rates make borrowing cheaper and saving less attractive.
\n– Cheaper borrowing stimulates investment by businesses and consumption by households.
\n<\/section>\n
\nCentral banks use interest rates as a tool of monetary policy. Decreasing interest rates (expansionary policy) is often used to stimulate economic growth during a slowdown by encouraging spending and investment. Conversely, increasing interest rates (contractionary policy) is used to curb inflation by making borrowing expensive and encouraging saving.
\n<\/section>\n","protected":false},"excerpt":{"rendered":"

If the interest rate is decreased in an economy, it will [amp_mcq option1=”decrease the consumption expenditure in the economy” option2=”increase the tax collection of the Government” option3=”increase the investment expenditure in the economy” option4=”increase the total savings in the economy” correct=”option3″] This question was previously asked in UPSC IAS – 2014 Download PDFAttempt Online A … <\/p>\n

Detailed SolutionIf the interest rate is decreased in an economy, it will<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1092],"tags":[1468,1120,1190],"class_list":["post-91200","post","type-post","status-publish","format-standard","hentry","category-upsc-ias","tag-1468","tag-economic-development","tag-money-banking","no-featured-image-padding"],"yoast_head":"\nIf the interest rate is decreased in an economy, it will<\/title>\n<meta name=\"description\" content=\"A decrease in the interest rate makes borrowing money cheaper. A) decrease the consumption expenditure: Lower interest rates generally make it cheaper for consumers to borrow for purchases (like vehicles, homes) or to use credit, which tends to *increase* consumption expenditure, not decrease it. Also, lower returns on savings encourage spending. B) increase the tax collection of the Government: While stimulating economic activity might eventually lead to higher tax collection, this is an indirect and not the most direct or immediate effect of a decreased interest rate. C) increase the investment expenditure in the economy: Businesses often borrow money to finance investments in capital goods, expansion, research, etc. A lower interest rate reduces the cost of borrowing, making more investment projects financially viable and thus encouraging businesses to increase investment expenditure. This is a primary channel through which monetary policy (via interest rates) affects the economy. D) increase the total savings in the economy: A lower interest rate means a lower return on savings. This makes saving less attractive relative to spending or investing, potentially leading to a *decrease* in the rate of saving or total savings, not an increase. - Interest rates represent the cost of borrowing and the return on saving. - Lower interest rates make borrowing cheaper and saving less attractive. - Cheaper borrowing stimulates investment by businesses and consumption by households.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/if-the-interest-rate-is-decreased-in-an-economy-it-will\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"If the interest rate is decreased in an economy, it will\" \/>\n<meta property=\"og:description\" content=\"A decrease in the interest rate makes borrowing money cheaper. A) decrease the consumption expenditure: Lower interest rates generally make it cheaper for consumers to borrow for purchases (like vehicles, homes) or to use credit, which tends to *increase* consumption expenditure, not decrease it. Also, lower returns on savings encourage spending. B) increase the tax collection of the Government: While stimulating economic activity might eventually lead to higher tax collection, this is an indirect and not the most direct or immediate effect of a decreased interest rate. C) increase the investment expenditure in the economy: Businesses often borrow money to finance investments in capital goods, expansion, research, etc. A lower interest rate reduces the cost of borrowing, making more investment projects financially viable and thus encouraging businesses to increase investment expenditure. This is a primary channel through which monetary policy (via interest rates) affects the economy. D) increase the total savings in the economy: A lower interest rate means a lower return on savings. This makes saving less attractive relative to spending or investing, potentially leading to a *decrease* in the rate of saving or total savings, not an increase. - Interest rates represent the cost of borrowing and the return on saving. - Lower interest rates make borrowing cheaper and saving less attractive. - Cheaper borrowing stimulates investment by businesses and consumption by households.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/if-the-interest-rate-is-decreased-in-an-economy-it-will\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T10:49:04+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"If the interest rate is decreased in an economy, it will","description":"A decrease in the interest rate makes borrowing money cheaper. 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