Question

A decline in interest rates is expected to __________.

Answer 1

A decline in interest rates is expected to put the economy in recession. This is because with less interest comes less money earned and less spending as a result.

Answer 2

Explanation:

There are two types of interest rates in the economy. The first one is the rate of interest that banks or financial institutions give to the people for keeping their money with the bank for a specified period of time. The second one is the rate of interest which people have to pay for the loan they borrowed from the banks or financial institutions. There is a huge difference in both of the interest rates. If you are asking about the interest rate which banks pay to the people, then with the decrease of that interest rate, people will less likely to put their money in banks and thus the circulation of money will increase in the economy and the inflation would in turn increase. But if you talk about the interest that people have to pay on borrowing loans, then the decline in such interest rate will encourage people to take more loans and grow their businesses or anything they want. This would increase the economic activity in the country and thus economy will grow.