During a period of below-target inflation, a central bank decides to lower its base interest rate. Which of the following is most likely to occur in the short term as a result of this policy action?
An appreciation of the domestic exchange rate as international investors seek higher yields.
A decrease in the market price of existing long-term government bonds.
An increase in consumption and investment spending driven by lower borrowing costs.
An increase in the domestic savings ratio as household disposable income rises.
