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  • Don't higher interest rates increase the cost of production?

    I understand the basic idea that higher interest rates slow inflation by decreasing the money supply. However, higher interest rates mean it costs more for firms to borrow capital, and it must also discourage them from making investments that could improve production.

    So why doesn't the higher cost of borrowing get passed down to consumers as higher cost goods?

    3 AnswersEconomics1 decade ago