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Impact of Interest Rates on Economy

   

Added on  2020-03-23

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Running Head: ECONOMICS1EconomicsName:Institution:
Impact of Interest Rates on Economy_1

Economics2Question AIncrease in Real Economic GrowthThis would be likely to be due to a ⇑ in capital return. A rise causes an⇑ in investment, and the change raises interest rates. The growth would favor the fiscal outlook.Increase in InflationInterest rates always tend to raise with increased expectations of inflation. Consumers arefaced with difficulty to make a choice now or postpone their purchases into the future (Keynes, 2016). If prices are to rise early, they tend to buy sooner, ⇑ in demand for borrowing and to lower savings, and interest rates go up to balance demand and supply.Increase in Risk PremiumThe sudden would be unexpected. It would lead to default or debt restructuring, causing investors to reduce holdings of sovereign debt in a given country. This would cause the rates to go up without any increase in GDP.Question BForeign exchange market allows participants to buy, sell or trade currencies. A ⇑ in the interest rates of a country rises demand of the currency of that country and its value appreciates. An⇑ in the rates makes investors want to capitalize high returns. The currency is viewed to be stronger because investors seek more of the currency to make more profit. The money market is a market that provides liquidity to market partaker through short-term financing. Increase in interest rates does not directly affect the money market (Benes, Berg,
Impact of Interest Rates on Economy_2

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