ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The correct answer is option D) rise. A decline in interest rates will lead to a decrease in the cost of borrowing funds, which in turn will encourage people to borrow more and increase spending on housing.

Detailed explanation-2: -Lower interest rates for consumers mean more spending. Lower interest rates for business mean increased production of goods, and the creation of new jobs for the people who produce, sell, and deliver the goods.

Detailed explanation-3: -When interest rates are rising, both businesses and consumers will cut back on spending. This will cause earnings to fall and stock prices to drop. On the other hand, when interest rates have fallen significantly, consumers and businesses will increase spending, causing stock prices to rise.

Detailed explanation-4: -As interest rates fall, businesses are more willing to invest to borrow for investment spending. And consumers, too, are more willing to borrow to buy cars and homes and so on. Thus spending increases. As spending increases, Aggregate Demand increases.

Detailed explanation-5: -First, it will reduce the cost of borrowing and generally increase the present value of future income. Second, lower rates will increase the value of the accumulated wealth invested in e.g. bonds or housing.