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How do interest rates affect the economy?

Interest rates can have a significant effect on the economy. Interest rates are the price that banks and other financial institutions charge for lending money, and are typically set by central banks. When interest rates are high, it becomes more expensive for consumers and businesses to borrow money, which can reduce spending and investment. This can slow economic growth and lead to lower inflation. On the other hand, when interest rates are low, it becomes cheaper for consumers and businesses to borrow money, which can increase spending and investment. This can stimulate economic growth and lead to higher inflation. Therefore, changes in interest rates can have a significant impact on the economy and are closely watched by investors and policymakers.

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