If the interest rate is decreased in an economy, it will

Decrease the consumption expenditure in the economy

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Increase the tax collection of the Government

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Increase the investment expenditure in the economy

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Increase the total savings in the economy

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Solution

The correct option is C Increase the investment expenditure in the economy
If the interest rate is decreased in an economy, people will deposit less money in the banks since they would not get high returns and borrow more money with a low-interest rate, hence money supply in the economy will increase. Decrease in interest rate in an economy will increase the money supply, thus increasing the investment expenditure. With low interest rates, the banks will have more leverage to lend money to businesses and to citizens to purchase household items or to invest in productive things. With this, option A is correct as if the interest rate is decreased, then there will be an increase in investment expenditure in the economy.

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Similar questions

Q. In an economy, the marginal propensity to save is 0.25. Investment is increased by Rs. 200 crores. Calculate the total increase in income and consumption expenditure.

Q. In an economy, the investment expenditure is increased by Rs. 2,000 crores. Calculate the total increase in income and consumption expenditure if ratio of marginal propensity to consume and marginal propensity to save is 4:1.
(Increase in income = Rs. 10,000 cores; Increase in Consumption Expenditure = Rs. 8,000 mores)

Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfer) is 100 and consumption is given by C = 100 + 0.75y

(i) What is the level of equilibrium income?

(ii) Calculate the value of the government expenditure multiplier and the tax multiplier.

(iii) If the government expenditure increases by 200, find the change in equilibrium income.

Q. Calculate autonomous consumption expenditure from the following date about an economy which is In equilibrium.
National income = Rs. 1,200
Marginal propensity to save = 0.20
Investment expenditure = Rs. 100
(Autonomous Consumption Expenditure = 140)

Q. Calculate investment expenditure from the following date about an economy which is in equilibrium:
National income = Rs. 1,000
Marginal propensity to save = Rs. 0.25
Autonomous consumption expenditure = Rs. 200
(Investment Expenditure = 50)

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