ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Lowering rates makes borrowing money cheaper. This encourages consumer and business spending and investment and can boost asset prices. Lowering rates, however, can also lead to problems such as inflation and liquidity traps, which undermine the effectiveness of low rates.

Detailed explanation-2: -When interest rates decline, savings account rates also drop. When interest rates rise, savings account rates are bid up. Generally speaking, central banks and governments support low-interest rate environments. This artificially pushes down the rates earned everywhere else in the economy.

Detailed explanation-3: -Interest rates on savings accounts are often low because many traditional banks don’t need to attract new deposits, so they’re not as motivated to pay higher rates. But keep an eye out for high-yield accounts, which might earn more.

Detailed explanation-4: -Interest rates can determine how much money lenders and investors are willing to save and invest. Increased demand for loanable funds pushes interest rates up, while an increased supply of loanable funds pushes rates lower.