ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -The lower the interest rate, the more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend, which can create a ripple effect of increased spending throughout the economy.

Detailed explanation-3: -Interest Rate Changes 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-4: -One way that interest rates matter is they influence borrowing costs and spending decisions of households and businesses. Lower interest rates, for example, would encourage more people to obtain a mortgage for a new home or to borrow money for an automobile or for home improvement.

Detailed explanation-5: -Generally speaking, low interest rates are better for an economy because people invest their money on more lucrative investment opportunities rather than depositing their money in the bank. A low interest rate encourages consumption and credit. This will lead to greater investment and production.