How do interest rates generally affect consumer spending?

Interest rates play a significant role in influencing consumer spending behaviors. Higher interest rates generally increase the cost of borrowing. When consumers face higher costs for loans, whether for mortgages, car loans, or credit cards, they tend to reduce or delay their spending on big-ticket items. This decreased borrowing leads to a decline in overall consumption as individuals prioritize paying down debt or saving rather than spending.

On the other hand, lower interest rates lower the cost of borrowing, making loans more affordable for consumers. When interest rates are low, consumers are more likely to take out loans for large purchases, such as homes or vehicles, or to finance other expenditures, leading to an increase in overall spending in the economy. Lower rates also encourage consumers to use credit more freely, further stimulating spending.

Combining these ideas, both higher interest rates generally decrease spending, while lower interest rates increase spending, validates the choice that both A and C are accurate. This dual perspective highlights the inverse relationship between interest rates and consumer spending, where fluctuations in interest rates can lead to significant changes in economic activity.