Cash flow effect

If interest rates rise, the interest income of creditors will also rise. If, on the other hand, interest rates fall, borrowers will have more money available for consumption purposes. However, since it has been empirically proven that the propensity to buy of creditors is lower than that of debtors, an increase in interest rates will have a dampening effect on aggregate demand. If interest rates are lowered, however, there will be a demand-stimulating effect. – See cost-of-capital effect, low interest rate policy, zero interest rate, interest rate, real.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
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