Explain how rising interest rates affect consumption

Rising interest rates in the economy means that individuals are less likely to spend and so consumptions falls.This is because interest rates act as a reward to individuals for savings therefore a higher interest rate will encourage individuals to save more and gain higher returns instead of spending. If individuals save more of their income, there is less money available to be spent and as a result consumption falls.

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Answered by Daidria P. Economics tutor

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