"Interest rates,kept at record lows during the financial crisis to spur lending, may also rise."  How could this spur lending? when interest rates rise people start borrowing money-they do  not start lending. so why in this nytimes excerpt does it say lending increased?

Expert Answers

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First, interest rates have been kept low to spur lending.  When they rise, that will not spur lending.  What this is saying is that the interest rates had been low but they might have to rise and that would be bad.

Second, when interest rates rise, people do lend rather than borrow, if they can.  If there are high interest rates, you would not want to borrow because it costs more to pay it back.  But if there are high interest rates, you would want to lend because you get more return on your money.

So, this article is warning that interest rates might go up.  When they do, people will be less likely to borrow and aggregate demand might drop.

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