3Y: Economic Indicators - Interest Rates

Question 1

What are Interest Rates?

Answer 1

Interest rates are the cost of borrowing money or the reward of money saved.

Question 2

What is the effect of Low Interest Rates for Households? (4)

Answer 2

1. Access to cheaper finance will result in more borrowing.
2. Those with existing loans/mortgages will have more disposable income with reduced rates/repayments.
3. People less likely to save when interest rates are low.
4. Increased borrowing will increase the level of household debt.

Question 3

What is the effect of Low Interest Rates for Businesses? (2)

Answer 3

1. Expansion and new product development will be easier with cheaper loans. Could lead to + profitability.
2. Repayments on existing loans will decrease leading to lower business costs.

Question 4

What is the effect of Low Interest Rates for the Economy? (4)

Answer 4

1. Increase in borrowing and spending will lead to an increase in VAT revenue.
2. Increased investment will help reduce unemployment.
3. Cost of servicing National Debt will reduce.
4. Low interest rates will discourage consumers from saving and encourage spending.

Question 5

What is the effect of High Interest Rates for the Economy? (3)

Answer 5

Disadvantages;

1. Businesses will pay more in interest charges for borrowings, so will have less money for expansion.
2. Government will have to pay higher interest on the National Debt, so will have less money for services.
3. Borrowers will have to pay more interest, so less disposable income.

Advantage:

1. Savers will earn more interest on savings.

Question 6

Who control Interest Rates in Ireland?

Answer 6

Interest Rates in ireland are controlled by the ECB European Central Bank because ireland is a member of the Eurozone.