Question

4. Many people believe that high interest rates are bad for the economy. It is not widely known that some benefit from higher interest rates. Who benefits when rates go up? Why can higher interest rates indicate the something positive is happening in the economy? Please use examples to support your posting.

Pls write it on a paper and post picture here.. Should be atleast 100 words. Full ratings if instructions being followed.

Answer 1

ANSWER:

The benefits of having low or high rates of interest depend on the state of the economy. At times it is good to have low rates of interest. This usually occurs when the economy is weak; low interest rates persuade people to spend which raises the demand for products and services. The Central Bank often increases interest rates when inflation is predicted to increase above their inflation target. The financial entities such as banks, brokerage firms, insurance companies, and money managers usually benefit from higher interest rates.

Higher interest rates are likely to moderate economic growth. In such a scenario, higher rates of interest can benefit the economy by discouraging people from excessive spending, which would help cool the economy and get it back to normality. It increases the borrowing's cost, decreases the disposable income and thus limits the growth in consumer spending. For example: With higher interest rates, the payments of interest on credit cards and loans are more expensive. Thus it discourages people from spending and borrowing. Thus higher interest rates will tend to decrease consumer spending and investment. It will lead to a reduction in Aggregate Demand (AD).