What
happens if the real interest rate is lowered?
The real interest rate is the rate which is used by the country to lower or to adjust the immediate effects of inflation in an economy. It reflects the real cost of funds to the borrower and also the real yield that has been generated to the investor or the lender. It is also time-adjusted and inflation-adjusted and shows the real or the actual amount of money in the economy.
If the real interest rate is lowered, it is a positive sign for the stock market as the people will be investing more at lower interest rates. If the real interest rate is lowered, then more people will have incentives to borrow more money from the market and they will be having incentives to invest in the market and get higher returns. When people spend more in the market, the increment in money will lead to an increase in the growth and the inflation to increase.
The lower real interest rate will also make the businesses to grow as the investments will increase and the people will spend their money in the economy for growth. The companies will have benefits of lower costs and so they will be able to expand their businesses.
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