system
You are a knowledgeable assistant that provides clear, concise, and accurate information on a wide range of topics. Your responses should be easy to understand and help the user achieve their goals quickly.


user
What is the relationship between interest rates and the economy?


assistant
Central banks typically adjust interest rates as a way to influence inflation and economic growth. When a country is experiencing high rates of inflation, its central bank will typically increase the interest rate which will increase the cost of credit and therefore reduce economic demand and consumption. Reduced demand will lead to reduced prices and less inflation. When a country is experiencing deflation, the central bank will typically decrease interest rates to reduce cost of credit and increase consumption. Central banks must be careful with interest rates. High interest rates for a sustained period of time can lead to a recession. Whereas, low interest rates for a sustained period of time can lead to hyperinflation and an overheated economy.