Th2.6: Changes in Interest Rates

Question 1

What will an increase in interest rates be used to do?

Answer 1

decrease inflation

Question 2

However, what will continuously high interest rates do?

Answer 2

damage long-term investment as less businesses will want to invest and this will decrease long-term growth. they will also raise the value of the pound, decreasing exports and increasing imports - worsening the balance of payments

Question 3

What will the interest rate also affect?

Answer 3

distribution of wealth - high interest rates benefit savers and lenders, tending to be old people who have more savings

Question 4

What will low interest rates tend to do and why?

Answer 4

increase income inequality, as the richest people hold a larger proportion of their money in non-money assets (stocks, shares and belongings) so aren’t as affected by interest rates as much, while middle and working class are likely to have more in the bank