Why does a government lower interest rates to affect the value of the currency?
A) To strengthen the value of the currency in the world market
B) To make goods cheaper and more attractive in the world market
C) To stimulate inflation
D) To increase the number of foreign imports, thereby increasing trade
E) To offset the price of must-have commodities, such as oil

Question

Quizplus · Accepted Answer

When a government lowers interest rates, borrowing becomes cheaper and corporations and consumers can borrow more money to invest in their businesses or spend on consumer goods. This extra spending stimulates economic growth, leading to increased demand for goods and services. The increased demand for goods and services increases the demand for the currency, which strengthens its value in the world market. However, this increased demand for goods and services may also lead to inflation. By making goods cheaper and more attractive in the world markets, a government can stimulate demand for its currency while avoiding the inflationary effects of increased demand.

Why Does a Government Lower Interest Rates to Affect the Value