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When interest rates are high, it encourages saving and when interest rates are low, it encourages borrowing - Junior Cycle Business Studies - Question 7 - 2022
Question 7
When interest rates are high, it encourages saving and when interest rates are low, it encourages borrowing. (i) What is interest? (ii) Outline one reason why low ... show full transcript
Worked Solution & Example Answer:When interest rates are high, it encourages saving and when interest rates are low, it encourages borrowing - Junior Cycle Business Studies - Question 7 - 2022
Step 1
What is interest?
Answer
Interest is the amount paid by a borrower to a lender for the use of borrowed money. It is essentially the cost of borrowing funds and is typically expressed as a percentage of the amount borrowed, known as the interest rate. In the context of saving, interest serves as a reward given by a financial institution for deposits.
Step 2
Outline one reason why low interest rates encourage borrowing.
Answer
When interest rates are low, the cost of borrowing decreases. This leads individuals and businesses to be more inclined to take loans since they will not have to repay as much compared to higher interest rates, resulting in lower overall repayments.