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The interest rate is basically the price of money. The main concept behind the interest rate when thinking about consumption decisions is opportunity cost. In terms of the household, if the interest rate is high the opportunity cost of consumption is high because the rate of return for investing is high. Prospectively, the household could have much more purchasing power if the household would invest rather than consume. If there is a higher interest rate consumption will probably go down as more people will invest more because the returns to investment will be higher. It will depend on if the household values consumption now more than consumption later, if the goods and services they need at the present is worth more than how much they will receive in the future through investment. If the interest rate is low the opportunity cost of consumption is low because the rate of return for investing is low. There will be very little value lost to consumption now because the household will get very little from investing when there is a low interest rate.

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