What do low short-term interest rates typically support?

Low short-term interest rates typically support carry trades, which is the correct answer. In a carry trade, investors borrow in a currency with low interest rates and invest in assets denominated in a currency with higher interest rates. The difference in yield between the two currencies can create profit opportunities. When short-term interest rates are low, the cost of borrowing is also low, making it an attractive environment for investors to leverage their positions through borrowing. This increased borrowing can lead to greater flows of capital into higher-yielding investments.

In contrast, while low interest rates might influence other aspects of the economy, they do not directly support a decrease in currency value, nor do they inherently encourage investment in bonds, as lower rates might make bond investments less attractive. Government spending can be indirectly influenced by low interest rates, as cheaper borrowing costs may lead to increased public spending; however, this outcome is more nuanced and not the primary support mechanism like that observed in carry trades.