Please explain how higher interest rates helps reduce inflation? No matter what, people still have to buy shit. So how does high interest rates get people to spend less? People still need to buy homes, cars, food regardless of what the interest rate is. Those are kind of necessities, so shouldn’t the government do more to make it more affordable?
And if businesses are paying more for a product, then they have to charge the customer more. They can’t charge less just because people aren’t buying. If they do they won’t make any money themselves.
I’m confused. Please explain it to me.
In: Economics
Think about it the other way around:
You need to buy a house/car.
Interest rates go down, so you’re willing to borrow a little more to buy the house/car you want. The price for the same thing went up.
If you don’t borrow more, someone else will and you’ll lose the house/car to them.
What happens if you decide to buy a cheaper house or car? Well guess what, the same thing happened to those houses/cars and now they cost as much as the house/car you originally wanted. All the prices have gone up; there was inflation.
Lowering interest rates prevents that. Plus the other things people are mentioning.
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