How Interest Rates Affect

Topics: Inflation, Monetary policy, Unemployment Pages: 3 (873 words) Published: May 20, 2013
1) Interest rates: An interest rate is the rate at which interest is paid by borrowers to use the money they borrow from a lender. The annualized cost of credit or debt calculated as the percentage ratio of interest to the client. Each bank can determine its own interest rate on loans, but in practice local rates are about the same from bank to bank. In general, interest rates rise in periods of inflation, higher demand for credit, narrow money, or because of higher reserve requirements for banks. An increase in interest rates for some reason tends to dampen the business (because credit is more expensive) and the stock market (because investors can get higher income from bank deposits or bonds issued as from the purchase of shares). ( 2) Inflation: It is the persistent rise in the general price level over a given period of time. A sustained and rapid increase in prices, as by some broad index (eg CPI) measured over months or years and mirrored according to the declining purchasing power of the currency. ( 3) Employment: It is the willingness of an individual to work. He/she is provided with a job by an employer and are employed full time or part time in return for a specific amount of money. Introduction:

As stated in a business dictionary, an interest rate is the rate at which interest is paid by borrowers to use the money they borrow from a lender. ( The rising trend of borrowing in Australia has affected many Australian households economically. The Australian economy has experienced huge swings in interest rates in the different sectors of economy since the 1970s and the mid-1980s under the regulatory regime. Different groups get affected in different ways by interest rates. Change in interest rates results in fast and effective change in economy. When interest rates are high, people do not want to take loans from the Bank because it is more difficult to pay back the...
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