UNIT 19 Economic Indicators and Sustainability Impact of Low Interest Rates


Be an individual (household)


Borrowing: Loans will be cheaper. This will encourage more borrowing and thus more spending.


Saving: People will receive less return on savings. They may choose to spend rather than save in future.


Debt: Due to


increased borrowing and less saving, the level of household debt will increase.


Be a business (organisation)


Expansion: Businesses can borrow more to expand their business, increasing profits and employment.


Business costs: Businesses will be able to pay off existing loans at a cheaper rate. This will reduce their costs.


Be the economy (government)


Spending: With more people spending money, more VAT will be paid to the government.


Pensions: With consumers being encouraged to spend rather than save, more pressure will be put on the state to provide pensions when the population ages.


Business expansion: More people will be employed and there will be less pressure on the state to provide social protection.


Impact of high interest rates


• Individuals have a


shortage of disposable income,


therefore their mortgages may increase


• Fewer jobs because there are no new businesses


• Less


employment means a decrease in revenue for the


government.


EXAM PREPARATION!


State ‘low interest rates’. Explain this briefly and give an example of low interest rates. Apply it to the individual, business and the economy.


4 Exchange Rates


Exchange rates are the price of one currency in terms of another. It indicates how much foreign currency that you would receive for a euro.


Calculating Exchange Rates Two rates are given:


1. Going from euro to foreign currencies, you multiply by the ‘we sell’ rate


We are happy when we go on holidays. We multiply by the sell rate.


P. 310


Go to page 310 of the activity book.


Know It!


1. Definition 2. Formula (if appropriate)


3. Impact on individuals, businesses and the government


2. Going from foreign currency to euro, you divide by the ‘we buy’ rate


We are sad when we come back from our holidays. We divide by the buy rate.


383


STOP! WRITE IT!


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