Effects on Higher Interest Rates

• What happens to consumption spending when the cost of borrowing increases?

  Consumption spending is reduced as consumers may delay purchasing expensive items.
• Why might consumers delay purchasing expensive items like cars or houses when borrowing costs rise?

  Because higher borrowing costs make loans more expensive, leading to reduced consumption spending.
• How do higher interest rates affect savings?

  Higher interest rates make saving more attractive, potentially increasing the amount of savings.
• What is the impact of higher interest rates on businesses with significant debt?

  They will face higher interest costs, potentially reducing profitability and limiting expansion plans.
• How do higher borrowing costs affect business investment plans?

  Businesses may delay or cancel investment plans, potentially limiting their growth.
• What is the effect of higher interest rates on the housing market?

  Higher interest rates can dampen demand for property, potentially leading to lower house prices.
• What are the microeconomic effects of higher interest rates?

  • Reduced consumption spending
  • Increased savings
  • Higher business costs
  • Reduced investment
  • Housing market impact
• What is one macroeconomic effect of higher interest rates on economic growth?

  Higher interest rates can slow the rate of economic growth.
• How do higher interest rates help control inflation?

  By slowing demand, higher interest rates can help control inflation.
• What is the relationship between higher interest rates and exchange rates?

  Higher interest rates can attract foreign capital, causing the currency to appreciate.
• What is the impact of higher interest rates on government debt servicing?

  The cost of servicing government debt can increase, potentially leading to higher taxes or spending cuts.
• How can slower economic growth due to higher interest rates affect unemployment?

  Slower economic growth can lead to increased unemployment, particularly in sectors sensitive to interest rates.
• What are the macroeconomic effects of higher interest rates?

  • Slower economic growth
  • Inflation control
  • Exchange rate appreciation
  • Increased government debt servicing costs
  • Increased unemployment