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Copy of Interest rates

A basic description of how interest rates affect small businesses and their cunsumer spending
by

Mark Tippins

on 23 September 2014

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Transcript of Copy of Interest rates

Interest rates
Impact on
businesses
Cost of borrowing increases
Definition
The reward offered to savers, and the cost of borrowing money.
Impact on
consumer
spending
Borrowing is more expensive
Increase in
Interest Rates

More interest earned on savings - retired people
Usually balances out to decrease consumer spending
Mortgage repayments and other loan repayments increase
Lower profits and or higher prices
Understand how interest
rates affect businesses

Understand the meaning of interest rates
Understand how interest rates affect consumer spending
Who is affected by interest rates?
http://www.bbc.co.uk/learningzone/clips/interest-rates/8495.html
Calculation
Imagine you want to borrow £5000 to buy a car. At an interest rate of 10% per year. How much interest do you pay in the first year?
Imagine interesest rates increase to 20% per year. What is the interest you pay in the first year now?
£500
£1000
Do you think an increase in interest rates increases or decreases consumer spending?
Decreases
Who sets the interest rate?
The Bank of England
Monthly meetings
Mervyn King is the Governor of the Bank of England
Case Study
Natural World
1. Will an interest rate increase restrain or energise businesses?
Restrain
2. How did high interest rates impact upon the Natural World?
People spent less per head
3.How do lower interest rates impact
a.Stephanie (and other consumers)?
Reduced mortgage payments
b. Older retired people?
Their savings earn less interest so they suffer
Case Study
Increase
interest rates
Decrease
interest rates
Demand for eating out falls
Cost of mortgage or borrowing will go up so consumers spend less
Stay may have to increase prices which will further reduce demand
Stay may have to make staff redundant as they will not need as many waiters/chefs
Demand for eating out increases
People can take on more debt because it costs less to borrow
Customer’s mortgage and other loan repayments fall
Stay will be able to take more staff on to cope with demand
Stay’s loan repayments will fall
Stay may expand and open another restaurant in Wilmslow as borrowing is cheaper.
Ask Mervyn
Mervyn will decide whether to increase or decrease interest rates. You will have to decide whether this will make each of the people below happy or sad. Draw a smiley or sad face next to each one
A young teacher aiming to get on the property ladder
The owner of Stay restaurant
You wanting to take out a loan
to buy your first car in two years
Retired people living off their savings
Retired people - Savers
Young people trying to buy a house
People who have a mortgage –as their repayments are affected
Small business owners who want to borrow to grow their business
Everyone!
UK Interest Rates
Why do you think that the Bank of England has been cutting interest rates since late 2007?
To boost consumer spending in an economic downturn
Stay's loan repayments will increase
Past question
Full transcript