- Interest rate is the cost of borrowing money; if the cost is high, people/businesses generally borrow less - Borrowing money involves the creation of new mon

- Interest rate is the cost of borrowing money; if the cost is high, people/businesses generally borrow less - Borrowing money involves the creation of new money (fractional reserve banking); when you get a loan from a bank, they only have to have a certain portion of that backed by actual cash, the rest is created out of thin air. So you get your loan and spend it immediately. When enough people are borrowing, there is more money flying around; an economy can only produce so many "things" at once, so we have to compete over our purchases. This demand, fueled by borrowing, pushes prices up.