A Interest rates and monetary policy
An interest rate is the cost of borrowing money: the percentage of the amount of a loan paid by the borrower to the lender for the use of the lender's money. A country's minimum interest rate (the lowest rate that any lender can charge) is usually set by the central bank, as part of monetary policy, designed to keep inflation low. This can be achieved if demand (for goods and services, and the money with which to buy them) is nearly the same as supply. Demand is how much people consume and businesses invest in factories, machinery, creating new jobs etc. Supply is the creation of goods and services, using labour - paid work - and capital. When interest rates fall, people borrow more, and spend rather than save, and companies invest more. Consequently, the level of demand rises. When interest rates rise, so that borrowing becomes more expensive, individuals tend to save more and consume less. Companies also invest less, so demand is reduced.
If interest rates are set too low, the demand for goods and services grows faster than the market's ability to supply them. This causes prices to rise so that inflation occurs. If interest rates are set too high, this lowers borrowing and spending. This brings down inflation but also reduces output - the amount of goods produced and services performed, and employment - the number of jobs in the country.