How do changes in interest rates typically affect economic growth?

Interest rates play a crucial role in shaping economic growth through their influence on borrowing costs and overall economic activity. When interest rates are low, it typically becomes cheaper for individuals and businesses to borrow money. This encourages loans for consumption, such as purchasing homes and automobiles, and for investment in business expansion, which can lead to increased production and job creation.

As a result, lower interest rates can stimulate economic growth by boosting demand for goods and services, leading businesses to hire more workers and invest in growth. Conversely, when interest rates rise, the cost of borrowing increases, which can dampen consumer spending and business investment, potentially slowing economic growth.

This interconnected relationship highlights the importance of interest rates in influencing not just specific sectors like government spending, but the broader economic landscape, making the chosen answer a comprehensive understanding of the topic.