A lower long-term interest rate increases the value of long-term assets such as equity, bonds, and houses because dividends, interest payments, and the services provided by the house are discounted at a lower rate. It thus increases household wealth and, consequently, spending. A low long-term interest rate also makes it less attractive for households to save and more attractive to consume, thus again contributing to demand. Finally, long-term interest rates determine the profitability of real investment: lower long-term interest rates make today’s value of future profits higher, giving
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