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Different ways interest rates affect society
1. Different Ways Interest Rates Affect Society
Interest rates can make the average person jump for joy or pound their fist
in frustrations, depending on what the numbers say. Interest rates refer to
the annual price that a lender charges a borrower to take out a loan.
Usually, interest rate is expressed as a percentage of the total amount
borrowed.
Here are some of the ways that interest rates can affect society.
Changes the Cost of Borrowing
Naturally, higher interest rates mean that itโs more expensive to borrow
money, and lower interest rates mean that it costs less to borrow. When
consumers are paying more for their interest payments on loans and credit
cards, it affects other areas of spending. When they are paying less, they
have more disposable income to put back into the economy.
Increases Saving Rather than Spending
When interest rates are higher, consumers and businesses will be more
inclined to save money rather than spend it because they will earn greater
interest from saving. Planned purchases of big ticket items may be delayed
until the interest rates come back down to โacceptableโ levels. And once
spending slows or stops altogether, the rate of economic growth will also hit
a road block.
Higher Mortgage Interest Payments
If you have a variable rate mortgage, the interest payments you make will
increase if the rates increase. It doesnโt take even a full percentage point of
rate increase to see a decent rise in the monthly cost of a variable
mortgage. As with other examples, less disposable income translates to less
2. spending and slower economic growth.
Reduces Consumer Confidence
When interest rates tend to fluctuate and seem to rise whenever they feel
like rising, consumer confidence takes a real hit and both individuals and
businesses are reluctant to make investments and purchases. Consumer
confidence is a key factor in keeping the economy fresh and lively and
healthy. When the confidence starts to wane, it can disrupt the entire
process.
Potential Inflation
When interest rates are low, economic growth is encouraged and
stimulated as people get out there and spend their money in all sectors.
However, low interest rates can also lead to inflation, which is a situation
nobody wants.
Inflation occurs when the prices of goods and services gradually increase in
an economy. The rise takes time, but the result is the reduction in the
buying power of money, making each unit of currency less valuable than it
was before. Higher interest rates will usually put a stop to inflation, but will
affect the economic growth. This is another reason why keeping a close
eye on interest rates is so important.
Affecting Economic Recovery
When there is a tug of war going on between inflation and economic
growth, governments and central banks must perform a careful balancing
act to keep the right balance between the two. In a fragile economy that is
just recovering from a recession this balancing act is even more important.
3. If Youโre in Trouble
If youโve fallen victim to interest rate interest rate fluctuations and find
yourself in financial trouble, there are always options to consider. Credit
counseling is always a great tool to help get you back on track and on level
ground once again. A credit counselor will help you to organize your
financial situation and make sound decisions about your money and future.
No one ever intends to get into financial difficulty, but if you do you
shouldnโt have to linger in it and suffer for longer than is absolutely
necessary. A counselor can help you right the ship, and heโll also teach you
about the interest rates that helped get you into trouble in the first place.
http://doylesalewski.ca/
Doyle Salewski
http://www.economicshelp.org/macroeconomics/monetary-policy/effect-
raising-interest-rates.html
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