Interest rates impact borrowing and spending decisions from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Interest rates play a critical role in influencing individuals' and businesses' borrowing and spending decisions. When interest rates are low, the cost of borrowing money decreases, making it more attractive for individuals and businesses to take out loans to finance purchases or investments. For example, lower interest rates on mortgages can encourage more people to buy homes, stimulating the housing market and boosting economic activity. Conversely, when interest rates are high, borrowing becomes more expensive, leading to fewer individuals and businesses taking out loans. This can dampen consumer spending and business investment, slowing down economic growth. For instance, higher interest rates on credit cards can discourage consumers from making big-ticket purchases, which can have a negative impact on retail sales. Moreover, inter...
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