How do interest rates affect the economy?

How do interest rates affect the economy?

Interest rates influence borrowing costs, consumer spending, and investment, which can drive economic growth or contraction.

Can you explain how lower interest rates stimulate economic growth?

Lower interest rates reduce the cost of loans, encouraging businesses to invest and consumers to spend, boosting economic activity.

What happens to the economy when interest rates are raised?

Raising interest rates increases borrowing costs, which can slow down spending and investment, potentially leading to an economic slowdown.

Are there any long-term effects of fluctuating interest rates?

Yes, long-term fluctuations can affect inflation rates, currency value, and overall economic stability.

How do central banks decide on interest rate changes?

Central banks analyze economic indicators like inflation, employment rates, and GDP growth to make informed decisions on interest rates.