What effect does a decrease in interest rates typically have on consumer behavior?

A decrease in interest rates generally leads to a lower cost of borrowing, making loans more accessible and attractive to consumers. When interest rates fall, the monthly payments on loans become lower, which can incentivize individuals to take out loans for various purposes such as purchasing homes, cars, or financing major expenditures. This increase in borrowing capacity allows consumers to spend more, boosting overall consumer spending in the economy.

Moreover, lower interest rates may also encourage consumers to spend rather than save. When savings accounts and fixed-income investments yield less return due to lower interest rates, consumers may find it more beneficial to use their funds for consumption rather than holding onto them for low yields. This behavioral shift can lead to increased demand for goods and services, further stimulating economic activity.

In summary, the correct answer reflects the relationship between interest rates and consumer behavior, where a decrease typically encourages borrowing and increases overall spending, thereby contributing to economic growth.