Question

In three to four sentences, explain the effects of lower interest rates on consumption and investments.

Answer 1

Answer:

Lower interest rates give a smaller return from saving. This lower incentive to save will encourage consumers to spend rather than hold onto money. Cheaper borrowing costs. ... It will encourage consumers and firms to take out loans to finance greater spending and investment.

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Answer 2

When interest rates on borrowed money are lower, it becomes cheaper for individuals to borrow money, as they must pay less additional money as interest. Thus, they tend to borrow more money and use it to purchase more things. The opposite occurs when interest rates increase.

When interest rates on invested money are lower, people make less return off of their investments, so they tend to invest less. Again, the opposite occurs when interest rates increase.