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Interest rates
The cost of borrowing money, expressed as a percentage, or the payment received for lending money; essentially determined how much extra you’ll pay on a loan or how much you’ll earn on a savings account
What are the impacts of spending on interest rates?
Higher interest rates: makes borrowing more expensive, leading to decreased spending on large purchases like houses and cars
Lower interest rates: makes borrowing cheaper, potentially leading to increased spending and investment
What are the impacts of saving on interest rates?
Higher interest rates: make savings accounts more attractive, encouraging people to save more
Lower interest rates: reduce the returns on savings, potentially leading to less saving and more investment in other assets
Personal finance implications; interest rates
Borrowing: higher rates mean higher loan payments (mortgages, credit cards), while lower rates can lead to lower interest costs
Saving: higher rates increase the return on savings, while lower rates may reduce the attractiveness of traditional savings vehicles
Investment: interest rate changes can affect investment decisions, with some investors shifting to different asset classes based on market conditions