What is the connection between interest rates and economic growth?

The relationship between interest rates and economic growth is derived from the use of interest rates as a means for achieving the required economic conditions. This means that interest rates are tools used to make the economy more stable restrictions on undesirable factors such as inflation and consumer consumption, consumers. The Office, which is entrusted with the power to make changes in the rate of interest in the economy, is the central bank of the considered country.

Central banks use money policies as a means of playing with interest rates and economic growth. They usually do this either by increasing or by reducing the interest rate of money that approach other banks in the economy. Economies have cycles that are used as a means of measurement of the health of such an economy and any profits that could be achieved in the economy by using several cash and fiscal policies. When parties with interest such as economists, entrepreneurs and entrepreneurs, government and various banks follow macroeconomic and microeconomistAfter analysis of periodic economic reports, the trends will come to various informed conclusions about the health of the economy. Where there are unfavorable macroeconomic indicators, such as increasing unemployment and inflation, the central bank could decide to raise the interest rate for money transferred to banks.

This action creates a link between interest rates and economic growth, because the purpose of increasing interest rates is to solve unfavorable elements in economics that are harmful to economic growth. For example, the action of increasing interest rates will have a domino effect on other banks-some of which can be compared to the reaction of the knee market. Interest rates increases that they tighten their polegies lending and also increase the interest rate, which applies to savings deposits. When consumers find that they cannot have the same easy access to different types of funds for their consumption, they will reduce the rate of such consumption.

Another link between interest rates and economic growth is observed in the way in which interest rate increases will cause consumers to save money for two main reasons. The first is to save their money due to the perceived lack of such funds, and the second is to use high interest rates offered by banks as a means of promoting savings. When this happens, the economy activity decreases and the inflation rate will decrease. Likewise, when the central bank reduces interest rates, consumers will have easier access to finance and the consumption rate will increase and stimulate the economy.