Gedeelde audio

Interest Rates Interest represents the price of money or the cost of borrowing. It is, therefore, assumed that there is a direct relationship between the interest rate and the level of spending in the economy. An increase in interest rates is thought to discourage spending in the economy and thereby reduce the level of aggregate spending. Other possible outcomes include the following: • Consumers would be encouraged to save with higher interest rates. • Mortgage payments would rise, leaving less