If the interest rate is decreased in an economy, it will

This exam-style item explicitly lists 'increase the tax collection of the Government' as a possible consequence of a decrease in interest rates, showing the claim is commonly considered and debated.

A student could take this as an example claim to test by tracing channels (rates → investment/consumption → GDP → tax receipts) using standard macro relations and data.

Defines tax buoyancy/elasticity: tax revenue responsiveness to changes in GDP and tax rates, providing a rule that links economic output changes to tax collections.

Combine this with the standard fact that lower interest rates can raise aggregate demand/output to assess whether induced GDP growth would mechanically raise tax revenue via buoyancy.

Explains 'fiscal drag'—income growth or inflation can raise tax revenue by moving taxpayers into higher brackets without changing rates, showing tax receipts depend on income distribution and nominal incomes.

A student could examine whether lower interest rates raise incomes (or inflation) enough to cause bracket creep and thus higher nominal tax receipts.

Shows how changes in taxes affect disposable income, consumption and equilibrium output via the tax multiplier, illustrating the two-way link between taxes and aggregate demand/output.

Use this multiplier logic in reverse: if lower rates raise output, apply tax buoyancy/tax multiplier ideas to estimate likely change in tax revenue.

Describes 'pump priming' (fiscal expansion via lower taxes and higher spending) and contrasts with contractionary fiscal policy, highlighting that tax policy affects aggregate demand—implying tax receipts depend on demand conditions.

A student can analogize: monetary stimulus (lower rates) similarly boosts demand, so assess whether resulting demand-led growth would increase tax collections.

Explains transmission: when policy (repo) rate falls, deposit rates charged to savers tend to fall as well—showing one direct channel by which interest changes affect the return on saving.

A student could combine this with the basic idea that lower returns on deposits reduce the incentive to save (substitution effect) to judge whether aggregate saving might fall.

States the Paradox of Thrift: changes in individual saving propensity can produce counterintuitive aggregate effects (higher propensity to save can leave total savings unchanged or lower).

Use this rule to recognise that interest-driven changes in behaviour might be offset by income changes (e.g., lower rates → more investment → higher income) so total savings could move unpredictably.

Discusses liquidity trap: even with repeated cuts in policy rate and falling deposit/lending rates, aggregate demand may not respond—showing that rate cuts do not always stimulate income or spending.

Combine with the idea that if rate cuts fail to raise income, the expected income effect on savings won’t materialise, so lower rates could reduce savings via lower returns without compensating income gains.

Describes how increased money supply can raise bond demand, push up bond prices and lower interest rates—giving an example of how market operations change interest rates and asset allocations.

A student could use this mechanism plus knowledge of portfolio choices (moving into bonds or spending) to infer whether lower market rates shift funds away from bank saving into other assets or consumption.

States the standard macro relation that higher aggregate saving enables more capital formation (saving = investment) and links saving to future income and production.

Combine with the possibility that lower interest rates may raise investment (increasing incomes) — which could raise total savings even if propensity to save falls; this highlights the opposing channels to weigh.