Lower interest rates reduce incentives to save and costs to borrow

Steps:

• Central bank cuts interest rates, lowering returns on deposits.
• Savers earn less interest, decreasing saving levels.
• Borrowers face lower loan costs, increasing borrowing demand.
• This stimulates economic activity during recession.

Why B is correct:

• Lower interest rates raise the opportunity cost of saving (less reward) while reducing the cost of borrowing, per basic interest rate theory in macroeconomics.

Why the others are wrong:

• A: Borrowing increases, not decreases, due to cheaper loans.
• C: Saving decreases, not increases, from lower returns.
• D: Saving decreases, not increases, as rewards fall.

Final answer: B