system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Canada is raising interest again to prevent a recession. How does this work?
gpt
First you have to realize it’s all related to inflation. Inflation simply means that goods and services cost more now than they used to. Next you have to understand the law of supply and demand and how they relate to pricing. If supply is high and demand is low, prices go down. If demand is high and supply is low, prices go up. Combining these two, we can understand that prices are going up, because demand for those good and services is going up. 

So how does changing interest rates affect this?  Well when interest rates are low, companies and people tend to take on more loans, since they are able to get that money cheaply. With more money to spend, they want to make use of that money, so they buy goods and services. But as already discussed, that means more demand, which means prices go up even more. But we don’t want prices to go up now, we want prices to go down. The only way to make prices go down is to either increase the supply more than the demand (something that a government can’t do in a capitalist society) or decrease demand. How can they decrease demand? Raise interest rates. With higher interest rates, companies and individuals do not borrow as much. As interest rates get higher, not only are they not borrowing as much, they are instead saving more and more of the money they do have. 

So raising interest rates lowers the amount of money being spent on goods and services, which lowers demand, which lowers prices.