By lowering interest rates, it becomes cheaper to borrow money and less profitable to save, which...

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Finance

By lowering interest rates, it becomes cheaper to borrow moneyand less profitable to save, which encourages individuals andbusinesses to spend. Now, since rates are lowered, savings aredenied, more money is borrowed and spent. As borrowing increases,the total money supply increases in the economy. Reducing interestrates therefore ultimately results in reduced savings, increasedmoney supply and better spending, which translates into higheroverall economic activity, which is a good thing. The bad side isthe decline in interest rates tend to increase inflation. Theremust be a kind of balance because there will be unpleasant effectson the economy. The trick to manipulate the interests is not tooverdo it, which is easier said than done, but it's better thandoing nothing.
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In a recessionary environment it becomes important to boost growth in the economy This boost comes via lower interest rates which as explained above enables higher and cheaper borrowing and these See Answer

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By lowering interest rates, it becomes cheaper to borrow moneyand less profitable to save, which encourages individuals andbusinesses to spend. Now, since rates are lowered, savings aredenied, more money is borrowed and spent. As borrowing increases,the total money supply increases in the economy. Reducing interestrates therefore ultimately results in reduced savings, increasedmoney supply and better spending, which translates into higheroverall economic activity, which is a good thing. The bad side isthe decline in interest rates tend to increase inflation. Theremust be a kind of balance because there will be unpleasant effectson the economy. The trick to manipulate the interests is not tooverdo it, which is easier said than done, but it's better thandoing nothing.What do you think?