ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When interest rates decrease, it becomes cheaper for individuals to borrow money, which can encourage them to consume more. In this case, when borrowing money is cheaper, individuals may be more willing to take on debt to finance their consumption.

Detailed explanation-2: -Low interest rates mean more spending money in consumers’ pockets. That also means they may be willing to make larger purchases and will borrow more, which spurs demand for household goods. This is an added benefit to financial institutions because banks are able to lend more.

Detailed explanation-3: -Higher interest rates make it more expensive for people to borrow money and encourage people to save. Overall, that means people will tend to spend less. If people spend less on goods and services overall, the prices of those things tend to rise more slowly. Slower price rises mean a lower rate of inflation.

Detailed explanation-4: -The fed funds rate impacts how much commercial banks charge each other for short-term loans. A higher rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money.

Detailed explanation-5: -The larger goal of the Fed raising interest rates is to slow economic activity, but not by too much. When rates increase, meaning it becomes more expensive to borrow money, consumers react by refraining from making large purchases and pulling back their spending.