Official Answer Key & Detailed Solution
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Correct Answer: Option (C) — Increase the investment expenditure in the economy
Concept & Option Breakdown
Standard Reference VerifiedA decrease in interest rates lowers the cost of borrowing for firms and entrepreneurs. This makes capital acquisition, business expansion, and infrastructure projects more viable, thereby directly increasing investment expenditure in the economy.
Classical & Keynesian direct transmission: Lower interest rate $\rightarrow$ cheaper cost of capital $\rightarrow$ higher investment demand.
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