IR (10)

Question 1

Define interest rates

Answer 1

The reward of saving, cost of borrowing

Question 2

Explain diagram

Answer 2

Price level and RGDP on axis, aggregate supply is the curve aggregate demand is there also, AD shifts left, Y drops and P drops

Question 3

Explain cost of borrowing

Answer 3

Cost of borrowing rises, interest rates payments are more expensive, discourages borrowing and spending. People with loans have a lower real disposable income has more money goes on interest rate payments instead of other areas of consumption so consumption falls

Question 4

Explain increase the value of a currency

Answer 4

Due to hot money, investors are more likely to save on British banks. Stronger pound makes UK exports less competitive, less export some more imports, reduces AD

Question 5

Explain reduced confidence

Answer 5

Consumer and business, a rise in interest rates discourages investment, firms and consumers less willing to take out risky investments and purchases

Question 6

Explain time lags

Answer 6

Can often take up to 18 months have an affect

Question 7

Explain how it affects people in different ways

Answer 7

Those of large mortgages will be disproportionately affected by rising interest rates. Will be worse off whereas those with savings might actually be better off

Question 8

3 effects

Answer 8

Higher cost of borrowing
Higher value of currency
Reduced confidence

Question 9

2 costs?

Answer 9

Time lags

Effects population in diff ways