JUNIOR CYCLE BUSINESS STUDIES Employment and the economy A
Find out the current APR on a loan in an Irish bank in Ireland today. Record it in the Economy Watch section of your
Activities and Accounts Book and monitor it.
Go to page 221 of your Activities and Accounts Book to identify the benefits of employment to the Irish economy.
INTEREST RATES
Interest is a reward for saving money or the cost of borrowing money. As we learned in chapter 8, the interest rate charged on borrowed money is called the Annual Percentage Rate (APR), e.g. 5%.
The Irish government does not set the interest rates in Ireland. They are set by the European Central Bank (ECB). The ECB may raise or lower interest rates.
Interest Rates and Inflation Interest rates are closely linked to another economic indicator: inflation.
• When interest rates are low, inflation increases. This is because more people can afford to borrow money, which means the demand for goods and services rises.
• When interest rates are high, inflation decreases. This is because fewer people can afford to borrow money, which means demand for goods and services falls.
The Impact of Increased Interest Rates A rise in interest rates impacts individuals, businesses and the economy in a number of ways: • Individuals have less disposable income and the standard of living is reduced. • Individuals are prevented from borrowing.
• There is more incentive to save as the return is high. Individuals are more likely to put off buying something now so that they can buy more in the future.
• Businesses may decide not to borrow or expand, which means fewer jobs will be created. • The economy will be less competitive.
