How do changes in interest rates affect consumer spending?

Changes in interest rates have a significant impact on consumer spending due to the cost of borrowing and the overall economic environment. Higher interest rates tend to increase the cost of loans, including mortgages, car loans, and credit card debt. When borrowing becomes more expensive, consumers are likely to reduce their spending because they may prefer not to take on higher debt obligations or may find that their existing debt becomes more burdensome due to increased interest payments.

As a result, with higher rates, consumers may prioritize saving or paying down existing debts instead of making new purchases. This reduction in consumer spending can then slow economic growth, as consumption is a major component of overall economic activity. Therefore, the relationship between higher interest rates and decreased consumer spending is well-established in economics, making this the correct answer.