Question

When interest rates fall a. firms want to borrow less for new plants and equipment and households want to borrow less for homebuilding. b. firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding. c. firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding. d. firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding.

Answer 1

Answer:

The correct answer is option b.

Explanation:

When there is a fall in the interest rate, it means the cost of borrowing will decrease. So it will become cheaper for both firms and households to borrow money.

Thus, borrowing will increase. Firms will borrow more for new plants or equipment to increase output. While households will borrow more for building homes and other such purposes.