What typically happens to interest rates when the central bank implements policies to stimulate economic growth?

When a central bank implements policies to stimulate economic growth, it often reduces interest rates. This is commonly done through mechanisms such as lowering the discount rate or engaging in open market operations, where the central bank buys securities to inject liquidity into the banking system. The primary goal of these actions is to encourage borrowing and spending by businesses and consumers, which can lead to increased economic activity.

Lower interest rates make borrowing cheaper, which incentivizes individuals and companies to take loans for consumption and investment. This increased demand can help boost growth during times of economic sluggishness or recession. Furthermore, lower rates can also lead to an increase in asset prices, as investors search for higher returns in a low-rate environment, which can further stimulate economic activity.

In contrast, policies that lead to rising interest rates would typically occur in an overheated economy where inflation is a concern, and the central bank aims to cool off excessive spending. Interest rates remaining unchanged would suggest that the central bank is not taking action to impact the economy, and wild fluctuations would indicate instability rather than a targeted policy approach. Thus, the expectation of lower interest rates aligns with the central bank's strategy to drive economic growth through increased liquidity and lower borrowing costs.