. to keep our economy in tact. An interest


When interest rates creep up, the economy slows down but when interest rates
fall down, the economy speeds up. Raising interest rates puts money into the
economy; high interest rates increases the cost of borrowing, increases the
incentive to save, raises the value of currency and can reduce consumer and
business confidence.  Low interest rates
makes loans cheaper so people are more likely to take them out. Lower interest
rates make it cheaper to borrow, reduce the incentive to save and raise asset
prices. The economy is a complex system that depends on interest rates to get
passed on throughout the economy. The economy cannot have too much or too
little but needs to be just right; interest rates help to keep our economy in

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            An interest rate is a
percentage charged on money set by the lender; anyone can lend money and charge
interest, but it’s most common in banks. Banks also pay people interest rates
on deposits if they borrow money, meaning they pay people in order to convince
them to make deposits.  The interest
rates in the economy are set by the country’s central bank depending on many
factors like the state of the economy. They can charge borrowers higher interest
rates than what they pay lenders so banks will profit; there is often
competition between banks causing a range of different interest rates. Interest
rates are applied to a total unpaid amount of a loan or credit balance; this is
important to know in order to see how much adds up to an outstanding debt.

Interest rates may be competitive, but not the same.  A bank can charge a higher interest rate if
there’s a low chance the debt will get paid or if borrowers are considered
risky.  The higher the credit score, the
lower the interest rate will be assigned. At a high level, the cost of debt
rises and discourages people from borrowing money. This usually happens when
inflation arises.


            When a consumer’s interest rates
changes, it can have both a positive and negative result. If a loan is
withdrawn from a bank, there is a hope that the person borrowing the money will
not repay. To make up the risk factor to the lenders, there is a reward of
interest. The reward of interest would be the amount of money the bank earns
when giving a loan, and the interest rate would be the percentage of the amount
that the bank charges to lend the money. Since interest exists, it allows
people to borrow money and spend it without waiting to save earn money in order
to make a purchase. When the interest rates are low, people are more inclined
to borrow money so they can make large purchases. This mostly applies to
businesses to spend more on riskier investments like stocks. When consumers
have lower interest, it lets them have more money to spend causing an increase
of spending for the economy. When interest rates are high, consumers have to
decrease spending since when people have to pay high interest rates since they
have less of a disposable income. People resort to saving their money since
they receive more from the savings rate. High interest rates reduce the capital
available to expand businesses resulting in cut back. This slows down the

            When interest rates rise and
fall, it is common for banks to use rates in order to lend each other money.

The rate acts as a measure to find out if interest rates are falling or rising.

Interest rates have an affect on inflation and recessions. When there is a rise
in price for goods and services, it refers to a strong and healthy economy. If
inflation is neglected, it could lead to a loss of value in currency. When
inflation rates start to rise to an alarming percentage, higher interest rates
help to control inflation. Higher borrowing costs result in people spending
less money; the demand for goods and services will fall and inflation will
follow. If a recession occurs, falling interest rates can cause it to end
because borrowing costs become cheaper and people will start spending again.

            Understanding why interest
rates rise and fall can help to take advantage of their impact. Interest rates
will rise and fall even if inflation expectations remain constant. This is
because businesses can fun more opportunities to use the money they borrow and
are willing to pay a higher rent price. The Bank of Canada is a powerful source
that supervises all banking operations throughout the country and controls
interest rates depending on the economy’s standards. When allocating money
there are typically three options: renting money through bonds, investing in
stock or a mix of both. Depending if interest rates are high, it’s important to
ask if they’re high enough to cover the inflation and still give a return or if
money rental prices are more sustainable than a stock fund.