It is a well-known fact that high-interest rates make loans more expensive. When interest rates are high, fewer people and businesses can afford to borrow. That lowers the amount of credit available to fund purchases, slowing consumer demand. At the same time, it encourages more people to save because they recerve more on their savings rate. High-interest rates also reduce the capital available to expand businesses, strangling supply. This reduction in liquidity slows the economy and results in decrease in GDP, It is understood that the low-interest rates stimulate all types of real investments and thus economic growth. However, savings rates fall, when savers find they get less interest on their deposits, and thus they might decide to spend more. They might also put their money into slightly riskier but more profitable investments, which drives stock prices. Based on this, it can be claimed that (especially high) interest rates are detrimental to economic growth as well as income distribution up • Critically assess the above-mentioned statement and argument.

It is a well-known fact that high-interest rates make loans more expensive. When interest rates are high, fewer people and businesses can afford to borrow. That lowers the amount of credit available to fund purchases, slowing consumer demand. At the same time, it encourages more people to save because they recerve more on their savings rate. High-interest rates also reduce the capital available to expand businesses, strangling supply. This reduction in liquidity slows the economy and results in decrease in GDP, It is understood that the low-interest rates stimulate all types of real investments and thus economic growth. However, savings rates fall, when savers find they get less interest on their deposits, and thus they might decide to spend more. They might also put their money into slightly riskier but more profitable investments, which drives stock prices. Based on this, it can be claimed that (especially high) interest rates are detrimental to economic growth as well as income distribution up • Critically assess the above-mentioned statement and argument.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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