Why does lowering interest rates help the economy?
a. All actions by the Fed help the economy.
b. Low rates are not usually followed by raising rates.
c. More people borrow when rates are low, so more money is spent.
d. Interest rates are similar to exchange rates for international currency.
c. More people borrow when rates are low, so more money is spent.
When interest rates are lowered, borrowing becomes cheaper and more attractive. This encourages consumers to take out loans for big-ticket items like homes and cars, as well as businesses to invest in expansion and innovation. This increase in borrowing and spending stimulates economic activity and can lead to growth in the economy.