Reference no: EM132666028

Question 1: Provide solution for the issue.

Issue: The impact of interest rate on individual -Increases the cost of borrowing

With higher interest rates, interest payments on credit cards and loans are more expensive. Therefore, this discourages people from borrowing and spending. People who already have loans will have less disposable income because they spend more on interest payments. Therefore, other areas of consumption will fall.

-Increase in mortgage interest payments

Related to the first point is the fact that interest payments on variable mortgages will increase. This will have a significant impact on consumer spending.

-Increased incentive to save rather than spend

Higher interest rates make it more attractive to save in a deposit account because of the interest gained.

-Reduced confidence

Interest rates affect consumer and business confidence. A rise in interest rates discourages investment; it makes firms and consumers less willing to take out risky investments and purchases.