Interest rates were high but have finally started to decrease. Explain the possible results on the economy.
The decreased cost of borrowing and increased return on savings sway customers to both save and spend. The economy grows quickly, resulting in higher inflation rates.
The decreased cost of borrowing and decreased return on savings encourage consumers to save rather than spending. Demand decreases, resulting in rising prices.
The cost of borrowing and return on savings both increase, which entice consumers to save instead of spending. Demand decreases, which could lead to falling prices for goods.
The decreased cost of borrowing and decreased return on savings discourage consumers to save. Demand increases, which could result in rising prices.
3 answers
Overall, the possible results on the economy depend on the specific factors influencing interest rates and the overall state of the economy.
The decreased cost of borrowing and decreased return on savings discourage consumers to save. Demand increases, which could result in rising prices.
In other words people borrow more, spend more, and save less.
In other words people borrow more, spend more, and save less.
Yes, that is correct. When interest rates decrease, borrowing money becomes cheaper and more attractive to consumers. As a result, consumers tend to borrow more and spend more, which leads to an increase in demand for goods and services in the economy. Additionally, the decrease in return on savings means that consumers are less incentivized to save money and more encouraged to spend, further increasing demand. This increased demand can lead to rising prices, as producers may increase their prices to match the increased demand.