Question

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds. A) increase; more B) decrease; less C) decrease; more D) increase; less E) increase; similar

Answer 1

The answer is A

Step-by-step explanation:

A decrease in interest rates will increase the demand(demand curve shifts to the right) for stocks and vice-versa because stocks will be selling at a lower amount since the interest rate is down. Whereas an increase in interest rate will decrease the price of stock because stock will be selling at higher price.

Stocks will now be cheaper than debts due to the low interest rate.