Question

What is the impact of lowering interest rates on economic growth?

Lowering interest rates stimulates economic growth as it makes borrowing cheaper. This incentivizes corporations to borrow more money for investment purposes, which in turn increases the flow of capital throughout the economy.

This question was asked on:

The Federal Reserve was created to help control inflation and deflation in the economy. It does this by regulating the interest rates of borrowed money, which alters the amount of capital that flows throughout the economy. Economic growth is stimulated when interest rates are lowered because corporations are more incentivized to borrow money for investment purposes when the money is cheaper. Alternatively, when prices rise too high, too fast, The Fed will raise interest rates to offset borrowing and slow the rising inflation costs.

View book summary Preview