Interest rates can have a big effect on how much people and businesses spend, and here’s how it works:
Consumer Spending: When interest rates are high, it costs more to borrow money. This makes people less likely to take out loans for big purchases, like cars or houses. As a result, people might feel less confident and spend less money.
Business Investment: High interest rates can also stop businesses from spending on new projects. When borrowing money is more expensive, companies think twice about investing, which can slow down overall economic growth.
Net Exports: When interest rates go up, the value of our money may increase. This makes our products more expensive for other countries to buy, while making it cheaper for us to buy things from them. This change can lower the total demand for goods and services.
To help with these problems, the government can try to lower interest rates. This makes it cheaper to borrow money, which can encourage people to spend more and businesses to invest.
Interest rates can have a big effect on how much people and businesses spend, and here’s how it works:
Consumer Spending: When interest rates are high, it costs more to borrow money. This makes people less likely to take out loans for big purchases, like cars or houses. As a result, people might feel less confident and spend less money.
Business Investment: High interest rates can also stop businesses from spending on new projects. When borrowing money is more expensive, companies think twice about investing, which can slow down overall economic growth.
Net Exports: When interest rates go up, the value of our money may increase. This makes our products more expensive for other countries to buy, while making it cheaper for us to buy things from them. This change can lower the total demand for goods and services.
To help with these problems, the government can try to lower interest rates. This makes it cheaper to borrow money, which can encourage people to spend more and businesses to invest.