Which of the following is likely to happen when the interest rate falls?
A) The equilibrium wage rate will fall.
B) The labor demand curve will shift to the right.
C) Economic activity will reduce.
D) The nominal GDP will decrease.

Question

Quizplus · Accepted Answer

When the interest rate falls, it becomes cheaper for firms to borrow money, leading to increased investment and expansion of output. This, in turn, increases the demand for labor, shifting the labor demand curve to the right. The equilibrium wage rate may increase or decrease depending on the magnitude of the labor demand and labor supply shifts, but it is not a certain outcome. Economic activity is likely to increase rather than reduce since lower interest rates stimulate borrowing, consumption, and investment, boosting aggregate demand and economic growth. Nominal GDP may increase or decrease depending on the changes in real GDP and the price level, but it is not a direct consequence of the interest rate movement.

Which of the Following Is Likely to Happen When the Interest