Question

Why have interest rates been so low during the past decade and what alternative explanations that were given to explain it.

Answer 1

Interest rates have been low in the past decades in order to encourage easy lending by the banks to the eligible businessmen, who could later invest the borrowed funds in their business and thus encourage investment and the overall growth of the economy. One alternative explanation that lower interest rates prevent the people from saving their money in their bank accounts or other financial instruments, and instead use them to consume more, thereby induce increase demand of goods in the economy. This increased consumption level would ultimately lead to increased national income levels.