Unit 7 Questions 6 Marker

Question 1

Explain one way in which a UK based luxury furniture retailer, could be affected by the Monetary Policy Committee’s decision to increase interest rates

DEFINITION

Answer 1

Interest rates are the cost of borrowing money and the reward for saving money

Question 2

Paragraph

Answer 2

An increase in interest rates could lead to a reduction in consumer disposable income, for example, if they have mortgages or loans that are on a variable rate

• Less disposable income could lead to a fall in demand for luxury products, leading to a fall in sales of luxury furniture

• Luxury furniture is more expensive than mass produced furniture, therefore it is often bought on finance; an increase in interest rates will make this cost of borrowing more expensive, which again can reduce demand