Question

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

Answer 1

Answer: Option (c) is correct.

Explanation:

When interest rates fall then firms want to borrow more for new plants and equipment and households want to borrow more for home building.

If there is a fall in the interest rate in an economy this will make the loans cheaper.

So, every individual wants to grab this opportunity by taking cheaper loans for various purposes such as home building, buying new plants  and equipment, etc.

Hence, firms take an advantage of the lower interest rate by making investment in plants, equipment and machinery.

Whereas households also want to borrow from banks at lower interest rates for building their home. Because it will become cheaper for them to take loan at the ongoing lower interest rate.