... to move house, as it is an extra cost. This will cause demand for houses to decrease, and in turn house prices will decrease. The amount that has to be repaid in the form of mortgage repayments is determined by the interest rates. If the central bank decides to increase interest rates, consumers will be discouraged to move and buy a new house, and new house owners to buy a house at all. This is because mortgage repayments would b higher, and it adds to the cost of buying and maintaining a house. This reduces consumers' disposable income, and discourages buying a house, causing the demand for houses to decrease and eventually causing house prices to decrease. The increase in interest rates will discourage consumption and increase saving, because consumers would gain a good return on money saved. The lack of consumption will cause aggregate demand to decrease, and in ...

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