Question

To a household, what kinds of spending are sensitive to interest rate fluctuation? Please provide at least two examples with a brief explanation.

Please provide detail in your example, so I can find similar sensitive spending examples.

Answer 1

Answer: to a household, spending on durable goods are sensitive to interest rate fluctuation. If the interest rate is high household reduces their spending on durable goods and increase their savings while if interest rate is low they increase their spending.

For example:

• Spending on buying a new house is very sensitive to interest rate fluctuations. Suppose interest rate is high households will not prefer to buy a house by taking loan as they will have to pay huge amount of extra money in the form of interest rate and if interest rate is low households will prefer to buy a new house as it will be less costly.
• Purchasing a new car by households is also sensitive to interest rate fluctuations

So buying expensive things for which households need huge amount of money are extremely sensitive to interest rate fluctuations.

in general, when interest rate is high people prefer to save more and spend on consumption less and when interest rate is low people prefer to save less and spend more.