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State two effects of high interest rates on business - Leaving Cert Business - Question 6 - 2010
Question 6
State two effects of high interest rates on business. (i) (ii)
Worked Solution & Example Answer:State two effects of high interest rates on business - Leaving Cert Business - Question 6 - 2010
Step 1
(i) Increase in Borrowing Costs
Answer
High interest rates lead to an increase in the cost of borrowing for businesses. When businesses seek loans for operations or investments, they are faced with higher interest payments, which can strain their financial resources and affect their overall profitability.
Step 2
(ii) Reduction in Profits
Answer
As interest rates rise, the profits of businesses can be further reduced due to the increased cost of servicing debt. Moreover, higher rates can also discourage consumer spending, leading to lower sales and concerns for businesses' long-term growth and expansion.