How do interest rates affect government purchases in the economy?
A)Higher interest rates cause the government to increase government expenditure.
B)Higher interest rates increase the government's debt repayments, and so the government has to spend more money to match the debt.
C)Lower interest rates reduce the government's debt repayments, and this frees up money for government expenditure.
D)Lower interest rates cause the government to lower government expenditure.

Question

Quizplus · Accepted Answer

When interest rates are lower, the government's debt repayments are reduced. This means that the government has more funds available for government purchases and expenditure. Therefore, lower interest rates lead to increased government expenditure.

How Do Interest Rates Affect Government Purchases in the Economy