ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Interest rates affect the cost of borrowing money over time, and so lower interest rates make borrowing cheaper-allowing people to spend and invest more freely. Increasing rates, on the other hand makes borrowing more costly and can reign in spending in favor of saving.

Detailed explanation-2: -When consumers are paying less interest it gives them more money to spend overall, and creates a ripple effect of increased spending across the broader economy. Conversely, higher interest rates mean that consumers will not have as much disposable income to work with and will likely cut back on spending.

Detailed explanation-3: -Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate.

Detailed explanation-4: -In summary, when interest rates are lowered: Bond prices rise. Potential stock market gains. Lower interest rates on savings accounts and CDs.

Detailed explanation-5: -Rising interest rates affects spending because the cost of borrowing money goes up. So, if you have a mortgage, any type of credit card or a loan, you could end up paying more for the money you originally borrowed. This will mean that you inevitably have less money to spend on goods and services.