The Effect of Interest Rates on Demand and Supply
Order ID |
53563633773 |
Type |
Essay |
Writer Level |
Masters |
Style |
APA |
Sources/References |
4 |
Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
The Effect of Interest Rates on Demand and Supply
Interest rates have a significant impact on both demand and supply in an economy. Interest rates are the cost of borrowing money and the return on lending money. In general, higher interest rates increase the cost of borrowing, which reduces demand for credit, and increases the supply of savings. Conversely, lower interest rates decrease the cost of borrowing, increasing the demand for credit and reducing the supply of savings. In this essay, we will explore the impact of interest rates on demand and supply in an economy in more detail.
Demand for goods and services is affected by interest rates because changes in interest rates affect the cost of borrowing money for consumers and businesses. When interest rates are high, the cost of borrowing increases, making it more expensive for consumers and businesses to take out loans. This reduces the demand for loans, and thus the demand for goods and services, as consumers and businesses have less money to spend. In contrast, when interest rates are low, the cost of borrowing decreases, making it easier and cheaper for consumers and businesses to take out loans. This increases the demand for loans and, thus, the demand for goods and services.
Another way in which interest rates affect demand is through their impact on asset prices. Higher interest rates make investments in bonds and other fixed-income assets more attractive, as they offer a higher return on investment. This reduces demand for stocks and other riskier investments, which can reduce the demand for goods and services. Conversely, lower interest rates make stocks and other riskier investments more attractive, which can increase demand for goods and services.
On the supply side, interest rates affect the willingness of savers to save and lenders to lend. When interest rates are high, the return on savings increases, making saving more attractive. This increases the supply of savings, as more individuals are willing to save their money instead of spending it. In contrast, when interest rates are low, the return on savings decreases, making saving less attractive. This reduces the supply of savings, as fewer individuals are willing to save their money.
Similarly, higher interest rates make it more attractive for lenders to lend money, as they receive a higher return on their investment. This increases the supply of credit in the economy, as lenders are more willing to lend. Conversely, lower interest rates reduce the return on lending, making it less attractive for lenders to lend money. This reduces the supply of credit in the economy, as lenders are less willing to lend.
Interest rates also have an impact on the housing market. Higher interest rates make mortgages more expensive, reducing the demand for homes and decreasing the supply of credit available for mortgages. Conversely, lower interest rates make mortgages more affordable, increasing the demand for homes and increasing the supply of credit available for mortgages.
Overall, interest rates have a significant impact on both demand and supply in an economy. Higher interest rates reduce demand for credit and increase the supply of savings, while lower interest rates increase demand for credit and reduce the supply of savings. Additionally, higher interest rates make it more attractive for lenders to lend money, increasing the supply of credit, while lower interest rates make it less attractive for lenders to lend money, reducing the supply of credit. Understanding the relationship between interest rates and demand and supply is essential for policymakers and economists to make informed decisions about monetary policy and the overall health of the economy.
The Effect of Interest Rates on Demand and Supply
RUBRIC
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Content (worth a maximum of 50% of the total points) |
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30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
Use of Sources (worth a maximum of 20% of the total points). |
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5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. |
15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
Grammar (worth maximum of 20% of total points) |
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15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. |
20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. |
Structure of the Paper (worth 10% of total points) |
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7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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