What is the connection between interest rates and consumption? What danger did prolonged ...

Interest rate affects consumer spending in a big way. When the interest rate is low, consumers can borrow easily and then can avail mortgage loans, automobile loans, education loans, consumer durable goods loans, etc. In addition, consumers tend to spend more on their credit cards when the interest rate is low. In addition, when the interest rate is low, consumers earn less interest on their savings. Therefore, low-interest rate encourages consumers to spend more and save less.

On the other hand, high interest rates increase the costs of borrowing. Therefore, credit card outstandings become costlier or the car loan becomes costlier. Therefore, the consumer would spend less on his/her credit card or delay the car loan. Moreover, higher interest rates provide more interest income on people's savings. So, higher interest rate encourages people to spend less and save more.