Question 61

When the interest rate is decreased in an economy, it makes borrowing cheaper and saving less attractive. Let's analyze the options:

• A) decrease the consumption expenditure in the economy: This is incorrect. Lower interest rates generally encourage consumption, as borrowing for big-ticket items becomes cheaper and saving yields less return, incentivizing spending.
• B) increase the tax collection of the Government: This is an indirect and not necessarily direct effect. While increased economic activity due to lower interest rates *could* lead to higher tax collections, it's not the immediate or primary direct impact of a rate decrease.
• C) increase the investment expenditure in the economy: This is correct. Businesses are more likely to borrow money for new projects, expansion, or capital expenditure when the cost of borrowing (interest rate) is lower. This makes potential investment projects more profitable and attractive, leading to increased investment expenditure.
• D) increase the total savings in the economy: This is incorrect. Lower interest rates reduce the return on savings, thereby typically discouraging saving and incentivizing consumption or investment instead.

Therefore, a decrease in interest rates primarily stimulates investment expenditure.