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What are the main factors influencing interest rates, and how do changes in interest rates affect borrowing and lending activities?

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The main factors influencing interest rates include the supply and demand of money, inflation rates, economic growth, central bank policies, and geopolitical events. Changes in interest rates can affect borrowing and lending activities in the following ways:

  1. Lower interest rates tend to stimulate borrowing as it becomes cheaper to borrow money, leading to increased spending, investment, and economic growth.

  2. Higher interest rates can discourage borrowing as it becomes more expensive to borrow money, resulting in reduced spending, investment, and economic growth.

  3. Changes in interest rates can also impact consumer behavior, affecting decisions on taking out loans for homes, cars, and other major purchases.

  4. Lenders may adjust their loan rates in response to changes in interest rates, influencing the cost of borrowing for individuals and businesses.

Overall, interest rates play a crucial role in shaping borrowing and lending activities in the economy.

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