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How do changing interest rates impact consumers?

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kryvnyukh | Student, Undergraduate | eNotes Newbie

Posted January 11, 2012 at 1:36 AM via web

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How do changing interest rates impact consumers?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted January 11, 2012 at 1:54 AM (Answer #1)

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Changing interest rates affect consumers most directly by changing the price that consumers must pay when they borrow money.  Consumers in countries like the United States typically take out loans in order to buy very big items (like houses, cars, or boats).  Changing interest rates affect the true price of these items.  If interest rates go up, for example, consumers effectively pay more for a car because they are likely to have to pay a higher interest rate on their loan.

Consumers who do not buy such "big ticket" items, or those who do not need loans to buy them, are much less affected by changing interest rates.

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nikasho0100 | Student, Grade 12 | Salutatorian

Posted March 27, 2012 at 6:54 PM (Answer #2)

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Change in interest rates can affect a persons spending, saving and burrowing. but how???????

Spending - as high interest rates would encourage consumers to spend less but save more but an a reduction in interest rates would mean people are discouraged to save therefore they spend.

Saving - High interest rates would encourage people to save as a higher return could be gained but a reduction would discourage as a lower return for what is invested.

Burrowing - Low interest rates would encourage people to burrow more from banks and spend but increase in interest rates would mean the cost of burrowing would increase and thus discourage consumers to burrow.Also can make reference to credit card facilities for goods (luxury)

 

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