Question

If a country’s manufacturing capacity is fully utilized, there can be no industrial growth without new capital investment. Any reduction in interest rates produces new capital investment.

Which one of the following can be properly concluded from the statements above?

• A. Interest rates might in exceptional cases be reduced without there being any subsequent investment of new capital.
• B. A reduction in interest rates might cause a precondition for industrial growth to be met.
• C. If a country’s manufacturing capacity is underutilized, interest rates should be held constant.
• D. New capital investment that takes place while interest rates are rising cannot lead to industrial growth.
• E. Manufacturing capacity newly created by capital investment needs to be fully utilized if it is to lead to industrial growth.

Answer 1

The correct option is B A reduction in interest rates might cause a precondition for industrial growth to be met.

Industrial growth = new capital investment = reduction in interest rates
Thus industrial growth = reduction in interest rates. Hence option (b).