Interest and inflation rates

Question 1

What are interest rates?

Answer 1

Tell you the cost of borrowing or the return on savings

Question 2

What is inflation?

Answer 2

An overall increase in the price of goods and services within an economy.

Two types:
- Demand pull = too much demand, increase in disposable income, prices of goods are raised, can increase profit margins
- Cost push = rising costs push up prices, employee wage rises can make prices go up if productivity isn’t rising, can make profit margins go down if businesses decide not to put up their prices

Question 3

What is deflation?

Answer 3

An overall decrease in the price of goods and services within an economy. Not enough demand, so businesses reduce their prices.