Changes in interest rates

• What does the economic climate impact?

  Businesses
• How does consumer spending affect businesses?

  It influences prices, investment, and employment
• What does the interest rate represent?

  • Cost of borrowing money
  • Amount received by savers
• What does an interest rate of 4% mean for borrowing?

  £4 paid for every £100 borrowed
• What does an interest rate of 4% mean for saving?

  £4 received for every £100 invested
• How do changes in interest rates affect savers and borrowers?

  • Increase in rates:
  • Savers: More interest, save more
  • Borrowers: Pay more, borrow less
  • Decrease in rates:
  • Savers: Less interest, spend more
  • Borrowers: Pay less, borrow more
• How do businesses react to changes in interest rates?

  They borrow money and adjust spending
• Which type of goods are most affected by interest rate changes?

  Expensive luxury goods
• What happens when consumers have less to spend?

  They may finance purchases or choose cheaper alternatives
• What might consumers replace a new car with if spending decreases?

  A second-hand car
• What are the key external influences on business?

  • Unemployment
  • Consumer income levels
  • Interest rates
  • Inflation
  • Government taxation
  • Exchange rates