Interest rates and the effects of interest rates on the economy concern not only macroeconomists but also consumers, savers, borrowers and lenders. A country can react and change its interest rates depending on the prosperity of its economy. Interest rates are the percentage typically paid annually by the borrower to the lender for loaning money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to take out loans and, therefore, there would be much less money to spend in the economy. Along with interest rates, this allows banks to take a percentage of the consumer's money and lend it to others, allowing economic growth to be possible. Interest rates also allow lenders to have a "safety net", which is necessary because there is a possibility that the borrower will not be able to repay a loan to the bank. A country's interest rates can be raised or lowered and these changes in interest rates are directly correlated to aggregate demand. Aggregate demand is the total demand for final goods and services in an economy at a given time (Business Dictionary). A nation uses interest rates for economic growth or to help prevent inflation. When economic growth is needed, a nation lowers its interest rates. However, if a country is concerned about inflation, it may choose to increase its interest rates. When interest rates, raised or lowered, will have a negative or positive impact on consumers and will have a positive or negative impact on investors. Just like gross domestic product (GDP), interest rates are divided into nominal and real. When learning about interest rates, it is crucial to be able to distinguish between a nominal interest rate and a real interest rate...... middle of paper .... .. two aspects, nominal and real, both measuring two different controls. Face value measures what is considered the “price” of a loan, which includes the price of inflation. While the real measures the cost of a loan without inflationary rates. Among the nominal and real rates, there are also lowered and increased rates. When the interest rate falls, consumer spending increases while saving decreases. Spending on things like housing becomes one of the ways AD increases. Even if the AD increases, it pulls the economy out of lack of spending, but puts it in a situation of possible inflation. Unlike low rates, high rates stop inflation but create the possibility of a recession. High interest rates lead to lower demand for goods and services. This fall in AD puts a stop to spending, borrowing and more, creating an incentive to save, which will ultimately curb inflation..