What is likely to happen if interest rates are lowered?

When interest rates are lowered, borrowing becomes less expensive for consumers and businesses. This reduction in borrowing costs typically encourages more loans to be taken out, which in turn can lead to increased consumer spending as individuals are more likely to finance big-ticket items such as homes and cars, as well as utilize credit for everyday purchases. Lower interest rates can also stimulate business investment, as companies find it cheaper to finance new projects or expand operations. Overall, the expectation is that with cheaper loans available, consumer confidence and spending will rise, contributing positively to aggregate demand.

The correct answer reflects this relationship between interest rates and consumer behavior, emphasizing how lower costs of borrowing can facilitate a rise in expenditure and economic activity.