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(1) When there is economic growth
(a) We try to borrow money (Y/N)
(b) We try to invest money (Y/N)
(2) When there is economic downfall
(a) We try to borrow money (Y/N)
(b) We try to invest money (Y/N)
Please state reason why do so?
Y-yes, N-NoThis is made by me to clear my concepts regarding ecomony changes. Please help!
If the economy is growing people and businesses are optimistic about the future and are more likely to have the confidence to borrow more eg to move to a larger house.
If the economy is in the doldrums, people are less likely to risk borrowing and are likely to try to build up savings as a safeguard and to wait for better days.
Knowing that interest rate are rising in economy growth people will try to borrow?
It depends. If they could get a fixed rate then you would borrow now if you feared higher rates later.
Remember also, if a government wants to encourage economic growth it will usually make borrowing more attractive eg lower interest rates. When the economy overheats and inflation becomes a threat the government will try to slow growth eg by increasing interest rates or restricting lending.
I was in this very dilemma so I asked this question. Like what is impact on interest rate on economy and vice versa.
Scenario One:
Government increase rates so our economy falls.
It means that interest rates are inversely proportional to Economy.Scenario Two
Economy grows so our interest rate increases as demand increases.
It means that economy is directly proportional to interest rate.
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