I need an explanation as to why it is true or false also.
2006-12-06 14:06:32 · 8 answers · asked by lil_miz_britt06 1 in Business & Finance ➔ Investing
false. when the interest rate increases consumers hold MORE money. the interest rate determines how much they get on the money they save. so if the rate goes from 2 to 5 percent, people will earn more on their savings so they will make an effort to put a lot into the savings. if it goes down from 5 to 2 percent, they will earn less on their savings so they dont bother to save it and just spend it.
2006-12-06 14:16:23 · answer #1 · answered by morequestions 5 · 1⤊ 0⤋
False. In demand pull inflation the consumers hold more money and they demand more of goods and services on their higher income or more people getting into employment. This means the consumers hold more money than usual. When this happens inflationary pressure goes high and the Fed or central banks raise interest rates to contain inflation.
Cost push inflation seldom happens in US due to input price controls stipulated by Paretto optimal criterions. If this happens what you say can be true.
2006-12-07 05:14:13 · answer #2 · answered by Mathew C 5 · 0⤊ 0⤋
The goal of the fed when increasing interest rate is to slow spending so people would save more. Therefore, the answer to your question is false. It is when interest rates are low, people tend to spend; thus having money less money in savings.
2006-12-06 17:08:41 · answer #3 · answered by Anonymous · 0⤊ 0⤋
I dont think the average consumer determines what they save by interest rates alone...A rise or decline in rates may alter ones decision to make significant purchases (ie. car or home) but really does not change the regular saving or spending habits of the regular consumer...
If it did, then nobody would ever carry credit card debt at 20% but they do so obviously the rates didnt affect the way they decided to spend
2006-12-06 16:34:43 · answer #4 · answered by rakemonster 3 · 0⤊ 0⤋
True, since most of the US families are deeply in debt, they will have to pay even higher mortgage payments/credit card interests, therefore hold less money.
2006-12-06 14:44:15 · answer #5 · answered by koko 2 · 0⤊ 0⤋
it's true if u are the borrower coz u will definitely pay high interest, so you will pay much more than u have borrowed... but on the other hand, like if u have savings in bank it is much better for u if they offer high interest for your savings account, ergo, you will earn more.
2006-12-06 14:24:05 · answer #6 · answered by sweet_MJ 2 · 0⤊ 0⤋
they will save more and spend less. So false.
2006-12-06 14:14:46 · answer #7 · answered by micg70 1 · 1⤊ 0⤋
do your own homework....or i'm telling your econ 101 professor
2006-12-06 16:01:54 · answer #8 · answered by Chris M 2 · 0⤊ 0⤋