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Impact of Australian Real Interest Rate on Household Savings

Added on - 15 Apr 2020

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Running head:IMPACT OF AUSTRALIAN REAL INTEREST RATE ON HOUSEHOLDSAVINGS: 1Impact of Australian Real Interest Rate on Household SavingsStudent by (Name)Institution
IMPACT OF AUSTRALIAN REAL INTEREST RATE ON HOUSEHOLD SAVINGS2Chapter one: INTRODUCTION1.1Preliminary ReviewAs finance student understanding the impact of the rate of interest as well as savingsbehavior is critical for my daily operations. Understanding of real interest rate is important for abanker as it performs various important function which in turn influences major economicdecisions in a country like Australia. But the content of this study looks deeply into one functionof interest rate which is its influence on how households in Australia allocate income in relationto present consumption and future consumption. Based on the effect of intertemporal decisionson economic growth, various studies have been done on the significance of interest rate as a wellas related policies. However the researchers have not come to common ground on the impact ofrates of interest on various other important macro and micro economic variable. Moreover, therehas been no agreement on the impact of economic variable known as savings. The relationshipbetween rate of interest as well as household savings rate has been a debate over the past with noagreement between various studies. The impact of interest rate on household savings rate asmatter of fact has been debated compared to the relationship between rate of interest and otherfactors. Based on this long debate, rate of interest responsiveness in relation savings clearlybecomes a parameter crucial importance in understanding economic as well as financial issues.The central question is how interest rate is related to household spending and how monetarypolicies impacts saving and rate of consumption. This current study investigates how interest rateimpacts how various households in Australia monetary consumption in present time and future.1.2 Scope of Study
IMPACT OF AUSTRALIAN REAL INTEREST RATE ON HOUSEHOLD SAVINGS3This current study will focus on the relationship between rate of saving in Australia andthe rate of interest. This research paper will discuss about the impact of the interest rate onhouseholds’ rate of saving in Australia. Over the recent past Australia has shown strong relianceon the face of external financial and economic externalities (Harris, Loundes & Webster, 2012).Australian economy has shown economic growth which is dependent to ball sectors includingsavings. To come up with a proper research, this study will rely on secondary data as source ofinformation on saving behavior and as well as the interest rate. This secondary source ofinformation will be obtained from the Australian Bureau of Statistics located on the linkhttp://www.abs.gov.au/Finance, which has information on the general economic indicators,including interest rates (Girouard, Kennedy & Andre, 2006). The data is publicly available andwill be downloaded and relevant data obtained and used for the purposes of this study.The study will also utilize various literatures review to come up with a proper discussionof the impact of the rate of interest on Australians household saving rate. These sources ofliterature are as follows:Suitable Information sources for the literature reviewThe real exchange rate and economic growth(Rodrick, 2008)This article investigates how currency undervaluation through high real exchange ratestimulates the growth of the economy and thereby, influences spending and savings decisions bypersons and households and will help in broadly understanding the general principles ofeconomic factors and spending/ savings.Household balance sheets and debt: an International Country Study(Isakssenet.al 2014).
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