How does changing the interest rate create a wide impact on the economy of a nation?
In: Economics
The interest rate reflects how expensive it is to borrow money. A high interest rate means borrowing money is relatively expensive, and people are thus less likely to borrow money to make large purchases like homes, cars, equipment for their businesses, etc. A low interest rate means borrowing money is relatively cheap, and people are thus more likely to borrow money to make those same purchases. If the economy is starting to slow down, the government will seek to lower interest rates in order to get people spending more money on purchases. If the economy is starting to go too fast, the government will seek to increase interest rates in order to slow down spending on purchases.
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