PRC-3 · Chapter 19 · Question 11 of 17
The Central Bank drastically lowers its benchmark discount rate (the rate it charges commercial banks to borrow). What is the intended macroeconomic effect?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) To make borrowing cheaper, stimulating investment and aggregate demand
Explanation
Lowering interest rates is an expansionary policy that reduces the cost of borrowing, thereby encouraging businesses to invest and consumers to spend.
More Monetary Policy MCQs
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- Q16When the Central Bank drastically increases the required 'Cash Reserve Ratio' for commercial banks, what is the direct effect on the…
- Q17Which of the following actions constitutes an 'Expansionary Monetary Policy' designed to pull an economy out of a severe recession?