Chapter 1 Flashcards
How does relative wealth of an individual effect how much they borrow
The more wealth someone has the smaller their need to borrow
How do rising interest rates have an impact on borrowing and purchasing for consumers
People will be more encouraged to save more as the reward for saving has increased.
People are less likely to take out loans. Because the cost of borrowing has increased
Monies paid into other investments will decrease. For example, monies can be earned from investing in
shares (a proportion of the ownership of businesses). Individuals are more likely to put money into savings
accounts as they are safer and earn more money than the ‘share investment’.
Consumers are likely to spend less as they are saving more and have fewer funds on which to draw as
they are less likely to borrow
How do rising interest rates have an impact on borrowing and purchasing for producers
Producers are likely to save more as the reward for saving has increased.
Producers are less likely to take out loans. This is because the cost of borrowing has increased.
Producers are less likely to invest. They are less likely to take out funds or use monies to purchase
machinery or expand their business. This is because the cost of borrowing has increased.
If interest rates fall how will this impact consumers in terms of purchasing and borrowing THINK
People will be encouraged to save less as the reward for saving has decreased.
People are more likely to take out loans. This is because the cost of borrowing has decreased.
Monies paid into other investments will increase.
Consumers are likely to spend more as they are saving less and have more funds on which to draw
If interest rates fall how will this impact producers in terms of purchasing and borrowing
Producers are likely to save less as the reward for saving has decreased.
Producers are more likely to take out loans. This is because the cost of borrowing has decreased.
Producers are more likely to invest. They are more likely to take out funds or use monies to purchase
machinery or expand their business
Investment definition
Investment is spending on capital goods such as new factories & other buildings
machinery & vehicles.
how is technological change a factor for how much firms invest
Technological change – as capital goods become more effective through technological advancement,
firms may be prepared to invest more
How is the fall of cost of capital goods a factor for how producers spend
Cost of capital goods – as capital goods fall in price, firms may be inclined to invest more to improve
efficiency or output.
How is the economic outlook a factor for how producers
spend money
The economic outlook – if the economy appears to be doing well (with economic growth improving
and unemployment low) firms may invest more to meet the demands of a wealthier society.
How are future expectations a factor for how producers act
Future expectations – if firms are confident that demand will rise in the future then more investment
may take place to ensure that output will meet that demand.
