Interest rates reflect time preferences from "summary" of Principles of Economics by Saifedean Ammous
Interest rates reflect time preferences because they represent the price of time in the market. Time preferences refer to how individuals value present consumption compared to future consumption. When interest rates are low, it indicates that people are willing to give up less present consumption to save for the future. Conversely, high interest rates suggest that individuals value present consumption more than future consumption, leading them to demand a higher return for delaying gratification.
In a free market, interest rates serve as a signal for allocating resources efficiently over time. When interest rates are low, it incentivizes borrowing for investment, as the cost of capital is cheaper. This encourages businesses to expand production and create...
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