By lowering short-term interest rates, a central bank can stimulate economic activity
A)since it encourages more investment spending
B)since more durable consumption goods will be bought
C)but only in the short run
D)but it may lead to a higher price level
E)all of the above

Question

Quizplus · Accepted Answer

Lowering short-term interest rates makes borrowing cheaper, which can encourage investment spending (A), increase the purchase of durable goods (B), typically has more immediate effects on the economy (C), and can lead to inflation, hence a higher price level (D).

By Lowering Short-Term Interest Rates, a Central Bank Can Stimulate