If the Federal Reserve lowers interest rates:
A)the dollar will appreciate, and this will lead to higher imports and lower exports and a fall in aggregate expenditure.
B)consumption and investment will increase, leading to a rise in aggregate expenditure and an increase in equilibrium GDP.
C)consumption and investment will decrease, leading to a fall in aggregate expenditure and a decrease in equilibrium GDP.
D)banks will lower loan amounts, and this will lead to a fall in investment, and a fall in aggregate expenditure.

Question

Quizplus · Accepted Answer

Lowering interest rates typically makes borrowing cheaper, which can lead to increased spending on consumption and investment. This increase in spending will lead to a rise in aggregate expenditure and an increase in equilibrium GDP.

If the Federal Reserve Lowers Interest Rates