Low interest rates boost economic activity

Steps:

• Central banks lower interest rates to make borrowing cheaper for businesses and consumers.
• Cheaper loans encourage firms to invest in expansion and individuals to spend more.
• Increased investment and spending raise aggregate demand in the economy.
• This stimulates growth, especially during slowdowns or recessions.

Why B is correct:

• Lower interest rates reduce the cost of capital, directly encouraging investment per the investment demand curve, which shifts rightward to stimulate economic output.

Why the others are wrong:

• A: Low rates make lending more attractive to banks, not discouraging it.
• C: While low rates can mildly increase inflation via demand, the primary goal is growth, not inflation targeting.
• D: Low rates fight low inflation or deflation, not reduce existing high inflation.

Final answer: B