Lowering interest rates stimulates economic activity

Steps:

• Monetary policy lowers interest rates to encourage borrowing and spending.
• Lower rates reduce the cost of loans for businesses and consumers.
• This boosts investment in projects like factories or equipment.
• Overall, it increases aggregate demand in the economy.

Why B is correct:

• Lower interest rates decrease the cost of capital, directly increasing investment per the investment demand curve, where investment rises as rates fall.

Why the others are wrong:

• A: Lower rates typically increase inflation by stimulating demand and raising prices.
• C: Lower rates discourage savings, as returns on deposits decrease.
• D: Lower rates reduce unemployment by spurring growth and job creation.

Final answer: B