Interest rate policies banking and the macroeconomy
The debate over the effectiveness of monetary policy often centers around the benefits of low interest rates as a stimulus for the real economy. The idea is that low interest rates encourage spending either in the form of consumption or investment and this promotes employment and production. The potential cost of low interest rates is the possibility of inflation not only in commodity prices but also in the price of assets (for example real estate). Therefore the debate about the desirability of low interest rates centers around the tradeoff between economic stimulus and higher inflation.