A Decline in Interest Rates Tends to Expand the Economy

question 177

Multiple Choice

A decline in interest rates tends to expand the economy by

• A)encouraging private investment and decrease in bank lending.
• B)appreciating the currency and lowering the profitability criterion for investments.
• C)decreasing the cost of capital and reducing net exports.
• D)depreciating the currency and raising net exports.

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Definitions:

Involuntary Reaction

A reflex or response to a stimulus that is automatic and not under the conscious control of an individual.

Autonomic Nervous System

The part of the nervous system that controls involuntary actions, such as the heartbeat and digestion, and regulates basic body processes.

Inverted-U Hypothesis

A theory suggesting that there is an optimal level of arousal for performance, with both too little and too much arousal leading to poorer performance.

Optimal Level

The most favorable or desirable degree or amount of something for achieving the best result or outcome.