Explain how rising interest rates affect consumption

Rising interest rates in the economy means that individuals are less likely to spend and so consumptions falls.This is because interest rates act as a reward to individuals for savings therefore a higher interest rate will encourage individuals to save more and gain higher returns instead of spending. If individuals save more of their income, there is less money available to be spent and as a result consumption falls.

DP
Answered by Daidria P. Economics tutor

2704 Views

See similar Economics GCSE tutors

Related Economics GCSE answers

All answers ▸

Explain the concept of price elasticity


What is a liquidity trap?


A small, independent fast-food shop is considering whether or not to introduce a new machine to speed up production. The machine would be able to produce burgers to order and enable the production of burgers to be split into different stages so that each


Define the term PPF and illustrate it.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences