2.5.1 Economic influence (INTEREST RATES)

Question 1

what is interest rates

Answer 1

the cost of borrowing and reward for saving

Question 2

what is interest rates expressed as

Answer 2

a percentage

Question 3

what is the current interest rate

Answer 3

4.5 %

Question 4

if interest rates fall what happens to spending

Answer 4

it increases

Question 5

if interest rates rise what happens to spending

Answer 5

it decreases

Question 6

impacts of interest rates to businesses

Answer 6

if they rise the costs of borrowing will rise and this will mean the cots of supplies for a business may increase

if they fall the cost of servicing debt falls which may lead to an increase in profits

Question 7

effects of increasing interest rates on investment

Answer 7

making new investments less profitable

higher borrowing costs as loans are more expensive

decreased consumer spending

slower economic growth

Question 8

effect of interest rate on demand (domestic consumption)

Answer 8

higher interest rates deter consumer from buying goods such as cars and furnitures on credit

Question 9

effect of interest rate on demand (domestic investment)

Answer 9

businesses out back on investment plans, leading to a fall in demand

Question 10

effect of interest rate on demand (stock)

Answer 10

businesses de-stock as a method of raising funds to lower borrowing costs when interest rates rise

Question 11

effects of interest rate on demand (imports and exports)

Answer 11

rise in interest rates leads to a rise in the value of the pound, making it harder to export profitably
a rise in the value of the pound also makes it easier for foreign firms to import into the uk profitably