Question

By lowering interest rates, it becomes cheaper to borrow money and less profitable to save, which encourages individuals and businesses to spend. Now, since rates are lowered, savings are denied, more money is borrowed and spent. As borrowing increases, the total money supply increases in the economy. Reducing interest rates therefore ultimately results in reduced savings, increased money supply and better spending, which translates into higher overall economic activity, which is a good thing. The bad side is the decline in interest rates tend to increase inflation. There must be a kind of balance because there will be unpleasant effects on the economy. The trick to manipulate the interests is not to overdo it, which is easier said than done, but it's better than doing nothing.
What do you think?

Answer 1

In a recessionary environment, it becomes important to boost growth in the economy. This boost comes via lower interest rates which, as explained above, enables higher and cheaper borrowing and these borrowed funds can be put to use to improve business and business processes, thus, improving the market. Lower interest rates also demotivate consumers to save (since earnings generated over saved funds is low) and enable consumer spending in the economy. Increased business activity combined with increased consumer spending boost economic growth. The flip side is that the increased money supply leads to boosting inflation in the economy which if kept unchecked can eventually lead to a hyper inflationary environment. However, if inflation is kept under check, it is helpful in ensuring economic growth.

Thus, yes, it is a good practice to tweak interest rates for ensuring growth in the economy while keeping a checking on the shift in the inflation following the change in interest rates.