When interest rates decrease, how might businesses and consumers change their ec

Question

When interest rates decrease, how might businesses and consumers change their economic behavior?

A.

There will be more consumption spending on interest-sensitive items and more investment by businesses.

B.

Consumers and businesses will spend less and save more.

C.

Consumers and businesses will invest in bonds or similar debt instruments.

D.

Consumers and businesses will hold smaller (average) cash balances.

Which of the following is an example of a money market instrument?

U.S. government treasury bill with six months to maturity

B.

a mortgage

C.

a share of stock in IBM

D.

a John Deere bond with 20 years to maturity

Explanation / Answer

(A)When Interest rate decreases there will be more consumption spending on interest-sensitive items and more investment by businesses.

(B) Share of Stock in IBM

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