Photo AI
5. (a) Explain the term 'interest rate' - Leaving Cert Business - Question 5 - 2014
Question 5
5. (a) Explain the term 'interest rate'. (b) Outline two possible economic impacts of low interest rates for Irish businesses. (i) (ii)
Worked Solution & Example Answer:5. (a) Explain the term 'interest rate' - Leaving Cert Business - Question 5 - 2014
Step 1
Explain the term 'interest rate'.
Answer
The term 'interest rate' refers to the price that borrowers must pay to lenders for the use of money. It can also be viewed as the reward for saving money. Specifically, the interest rate is expressed as a percentage of the amount borrowed or invested over a specific period.
In essence, when money is borrowed, the interest serves as the cost associated with obtaining that capital. Conversely, for savers, the interest rate reflects the return on their savings. This dual nature of interest rates illustrates their crucial role in the economy, influencing borrowing, spending, and saving behaviors.
Step 2
Outline two possible economic impacts of low interest rates for Irish businesses.
Answer
i) Low interest rates can lead to increased consumer spending as a result of the availability of cheaper credit from financial institutions. This can foster a rise in demand for products and services, ultimately resulting in higher business profits.
ii) Businesses may experience reduced repayments on loans and less cost for servicing debt due to lower interest rates. This can help lower operating costs, making businesses more competitive, facilitating exports, and potentially increasing overall profitability.