Interest rates

Question 1

what is interest rates?

Answer 1

the cost of borrowing money and reward for saving.

Question 2

what does interest rates affect?

what happens when interest rates fall? + how does that affect demand and costs

Answer 2

cost of borrowing and return on savings.

when interest rates fall the cost of borrowing is going to decrease. therefore incentives to borrow money such on credits card and get mortgage to buy a house will rise because it doesn’t cost much back.
- on other hand reward for saving money and receiving interest on that is also going to fall so there is not much use of saving money in the bank.

• business will see and increase in demand for products because there is lower interest rate so consumers will buy more because they have more disposable income.
• HOWEVER IT VARIES ON WHICH BUSINESS IT AFFECTS FOR E.G CARS, HOUSES KITCHENS AND HIGH END CONSUMER ELECTRONICS INTEREST RATES MAY HAVE A BIGGER AFFECT ON THESE TYPES OF BUSINESS.

if interest rates rises the cost of borrowing increases. the rewards of savings may increase. it becomes more appealing to keep your money in the bank.
- affects business investment as it will debts will increase as interest rates increase and also affect investments as business wont be able to have enough money for investments. so it will be wise for business save their money and not invested. also business cost will increase.

so
interest rate increase: higher cost, reduced demand

fall in interest rate
- reduce cost and increase in demand.