Interest rates are a key determinant of borrowing costs from "summary" of Financial Markets and Institutions, Global Edition by Frederic S. Mishkin,Stanley G. Eakins
Interest rates play a critical role in determining the cost of borrowing for individuals, businesses, and governments. When interest rates are low, it becomes cheaper to borrow money, and when interest rates are high, borrowing costs increase. This relationship between interest rates and borrowing costs is a fundamental concept in financial markets and institutions. Borrowing costs directly impact the decisions made by borrowers. Lower borrowing costs encourage individuals and businesses to take out loans to finance investments in homes, cars, and other assets. This increased borrowing can stimulate economic activity and drive growth. Conversely, higher borrowing costs can deter borrowing, leading to decreased spending and investment. The level of interest rates is influenced by a variety of factors, including central bank policies, inflation expectations, and overall economic conditions. Central banks use monetary policy tools to adjust interest rates in an effort to achieve specific economic objectives, such as price stability and full employment. Inflation expectations also play a signifi...
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