Lower interest rates reduce the cost of borrowing to buy inputs. If no other factors change, smart businesses increase their supply of outputs when interest rates are low.

Question

Quizplus · Accepted Answer

Lower interest rates reduce the cost of borrowing, which makes it cheaper for businesses to borrow money to buy inputs. This, in turn, increases the supply of outputs because businesses can produce more at a lower cost.

Lower Interest Rates Reduce the Cost of Borrowing to Buy