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The ultimate determinant of the overall effect of interest rate changes primarily depends on the consensus...

The ultimate determinant of the overall effect of interest rate changes primarily depends on the consensus attitude of consumers as to whether they are better off spending or saving in light of the change. Your thoughts?

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Answer #1

It does depend on the attitude of the consumers,but it also depends on the policy framework of the central bank.If the central bank decides to intervene in the status of employment in the country then it will change its policy and increase the money supply.Increase in money supply increases aggregate demand and output,thereby increasing employment rate but it also lowers the interest rate.

So,there are other factors as well influencing the interest rate besides consumer spending.

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