...Research Article: IMPACT OF INTEREST RATE ON INVESTMENT Farhan Nawaz UNIVERSITY OF GUJRAT, PAKISTAN E-mail: 10050920-086@uog.edu.pk Waqas Akram UNIVERSITY OF GUJRAT, PAKISTAN E-mail: 10050920-084@uog.edu.pk Abstract: The main aim of this study is to investigate “the impact of interest rate on investment” in an economy. For this purpose three main variables are selected which are Interest rate, Income level and Investment. Two variables are independent (Interest rate and Income level) and One variable is dependent (Investment). The hypothesis of this study is that the Investment has a negative association with interest rate and Investment has positive relationship with income. Interest rate has negative effect on investment and investment has a positive relation with the income level. We use questionnaire for finding our results and questionnaire are filled by different students of business studies. We find that there is a Negative relation between the interest rate and investment. If our finding matches with economic theory and others researchers finding than policy makers can make better policies for the economy. Impact of interest rate on Investment Introduction: An interest rate is the rate at which interest is paid by borrowers for the use of money that they borrow from a lender. Interest rate is the cost of borrowing money. When interest rate increases the overall investment is reduces. Most of the businesses invest partially or wholly is credited...
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...exports. The impact of the financial crisis notwithstanding, the UK economy has grown strongly since 1997, outpacing the rest of the G7 with the exception of Canada in terms of growth in GDP per capita. This strong performance was not achieved by a significant increase in hours worked, but rather a sustained period of faster labour productivity growth relative to our competitors. During this time, the UK could have faced an improvement in their education and training which leads to improved skills and therefore increasing productivity. This means there’s more output per worker – this decreases the costs of production for firms, lowering the price and therefore causing international competitiveness to increase. However, labour unit costs in the UK are very high due to the National Minimum Wage, meaning that labour costs per unit is high, causing higher wage costs, therefore meaning that the impact of productivity on increasing international competitiveness is limited to an extent. Non-wage costs like National Insurance contributions paid by employers, employment protection and anti-discrimination laws are frequently much higher in developed countries like the UK than in developing countries and so have the effect of reducing the international competitiveness of goods and services. Competitiveness is determined by a variety of factors, but one of the most important is a country’s real exchange rate, which is the nominal exchange rate adjusted for price levels between economies...
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...HOUSING BUBBLE AND ITS IMPACT ON GLOBAL FINANCIAL CRISIS (2007) Housing bubble or real estate bubble is one of the basic problems that lead to global financial crisis in the late 2000s. When people’s wealth substantially increased, they will spend or consume more on everything, including houses. People demand for a better and bigger homes until in the late 90s, consumption boom occurred. The increased in demand has triggered housing bubble and makes the bubble became bigger. When demand on houses increased, of course the prices would be increased too. Until some point, the demand decreases or becomes stagnant, but the supply is still increasing, it will lead to sharp drop in the houses’ prices. At this point the bubble burst. Basically, the main reason that triggered the bubble and made it bigger was the policies of the Federal Reserve back in 2003. Referring to the reason, to avoid recession after the collapse of the tech bubble in 2000 and the 9/11 attacks in U.S during 2001, the Federal Reserve started to lower the interest rate from 6.5% to 1.75%. In 2003, the interest rate has been lowered to 1% and it remained there for a full year. However, the house prices were still growing up, higher than the interest rate. Even the house prices were growing at the rate of inflation, the Federal then encouraged people to buy houses. Federal has made an incentive so that people can go out and borrow at the rate of 1%. In addition, they created Fannie Mae and Freddie Mac, a privately...
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...economy. The definition of investment is the spending by firms on capital good such as new machines etc. Finally the definition of interest rates is the proportion of a loan that is charged as interest to the borrower, normally expressed as an annual percentage. In the UK the interest rates are set by the Monetary Policy Committee and are usually used in order to influence levels of aggregate demand. Primarily, you must understand that lowering the rate of interest will make it cheaper for people to borrow as well as make it cheaper to pay back existing loans. As a result, firms may use this money that they have saved to spend on upgrading the quality of their capital goods. Also, increases in consumer expenditure will lead to an increase in aggregate demand because consumer expenditure is a component of of aggregate demand. However, if consumers are not confident in the future they may not be willing to part with their money in fear of the fact that they may have to pay a large percentage on top of the amount borrowed in interest. This will lead to a low level of consumer expenditure because they would just be loosing their money. Also, they may have the mindset that if they wait it will eventually return to a reasonable level. In terms of investment this is very similar because it is just the same concept but applied to firms as oppose to consumers, if confidence within firms is low then they will not invest in new capital goods. Also, if the rate is low then it will benefit...
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...The Implication of Hiked Interest Rates Name of Student Institutional Affiliation The Implication of Hiked Interest Rates The whole of this year has been characterized by speculations regarding the Federal Service’s Open Market Committee’s annunciation of the new increase in interest rates. The last time they were increased was in 2006, when the country’s economy was on course. As a rule, such changes occur at the time when the country’s economy is in a good state, with a steady increase in the employment rate and more jobs are being created. Economists have been quick to speculate that there was no better a time than this. For instance, there has been an increase in annual gross income for employees with more job creation opportunities. Before the end of this week, the Federal Reserve is expected to announce the new interest rates (Soergel, 2015). As any other economic tendency, it comes with its advantages and shortcomings to the saver and the borrower alike. Thus, it is necessary to analyze the effect such changes will have on various sectors of economy. Impact on the Stock Market The interest rate is the cost paid by the banks when borrowing from the Federal Reserve (Mueller, n.d.). It controls inflation by regulating the amount of money circulating in the economy and thus stabilizing the effects of demand and supply. Thus, the organization determines the amount of money available for goods on the market at any time...
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...and ID number are correctly given on the computer sheet. A correct set of answers will be made available following submission. This will enable students to check and review their answers. 25 % of Internally Assessed Component 9th November 2012 Name (Block letters): ____________________________ ID Number ____________________________________ Date: ______________ 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high rates of inflation. D) what causes recessions and depressions. 2. All of the following are important macroeconomic variables except: A) real GDP. B) the unemployment rate. C) the marginal rate of substitution. D) the inflation rate. 3. Deflation occurs when: A) real GDP decreases. B) the unemployment rate decreases. C) prices fall. D) prices increase, but at a slower rate. 4. How does the distinction between flexible and sticky prices impact the study of macroeconomics? A) The study of flexible prices is confined to microeconomics, while macroeconomics focuses on sticky prices. B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment. C) Flexible prices are typically assumed in the study of the long run, while...
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...Goodhart DeAnne Julius Ian Plenderleith John Vickers This report is also available on the Bank’s web site: www.bankofengland.co.uk The transmission mechanism of monetary policy Introduction and summary The Monetary Policy Committee (MPC) sets the short-term interest rate at which the Bank of England deals with the money markets. Decisions about that official interest rate affect economic activity and inflation through several channels, which are known collectively as the ‘transmission mechanism’ of monetary policy. The purpose of this paper is to describe the MPC’s view of the transmission mechanism. The key links in that mechanism are illustrated in the figure below. First, official interest rate decisions affect market interest rates (such as mortgage rates and bank deposit rates), to varying degrees. At the same time, policy actions and announcements affect expectations about the future course of the economy and the confidence with which these expectations are held, as well as affecting asset prices and the exchange rate. Second, these changes in turn affect the spending, saving and investment behaviour of individuals and firms in the economy. For example, other things being equal, higher interest rates tend to encourage saving rather than spending, and a higher value of...
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...these years. It is the fourth largest country in area after Russia, Canada and USA has experienced multifarious changes in its economic system which has seen it become the second largest economy in the world after USA if measured on the Purchasing Power Parity (PPP) scale. However, China still considered as an emerging economy as per capita incomes fall in the lower-middle level, China is making its presence felt in the global stage by taking big strides in opening up its economy to international trade. There are many economic problems faced by China during the years. And the inflation has become a serious challenge for the developing economy; the surplus of population and the rising unemployment rate and price. According to statistics, more than 250 million migrant workers and their dependents had removed to urban areas to find work. Hence, as China’s economy slows down due to falling external and internal demand, a number of 6.8 million new college graduates poured in to the job market in 2012, China’s unemployment situation has become more complex and more severe problem. As a result, the unemployment will impact the domestic economic development and vice versa. The government needs to step up efforts to create more positions, and the job market need suffer a downturn. This paper develops about...
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...Assignment: Prepare a short (5-7pp) paper explaining why an investment strategy might be an appropriate response to slow growth and also noting the possible downsides to such an approach. Your audience is a senior decision maker in business or government who is trying to figure out economic policy to support. You may assume that the decision maker has some knowledge of macroeconomics so you may use technical terms to keep your paper relatively brief. One of the greatest consequences of the 2007-2009 recession crisis is the scarcity of investments due to lack of confidence by investors and a decrease in lending by banks. This lessening of investment and lending was followed by a period of slow economic growth and a difficult return to a lower level of unemployment. The economic growth of a country is measured by the increase of gross domestic product (GDP). To accelerate economic growth requires stimulating the factors that make up the GDP. GDP is calculated by adding together the following diverse factors: consumption level, investment level, government purchases and net export. These factors and the interactions that occur among them define the level of the aggregate demand and the supply curves and consequently determines the level of equilibrium point, which in turn determines the price level and the value of the GDP. To encourage economic growth, the government has several tools at its disposition that can impact the aggregate supply and the aggregate demand. Three tools...
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...CHAPTER II The Real Economy7 2.1 Contributions to Real GDP Growth7 2.2 Unemployment Rates and Capacity Utilization8 2.3 Percent Growth In wages, in Prices, Level of Interest Rates8 2.4 Investment10 2.5 Consumption16 CHAPTER III The Foreign Trade(Imports, Exports)22 CHAPTER IV Government’s Fiscal and Monetary Policies23 CHAPTER V Summary of Macroeconomics Analysis France27 CHAPTER 1 International and National Context 1.1 International Environment Table 1.1.1 The International Environment | | average | 2010 | 2011 | 2012(BNP) | 2012(MF) | Real GDP | USA(GOV) | | 3.0 | 1.6 | 0.9 | 2.0 | | JAPAN | | 4.0 | -0.7 | 1.3 | | | EUROZONE(GOV) | | 1.8 | 1.6 | 0.7 | 1.4 | | ASIA(BNP) | | 9.2 | 7.7 | 7.6(CA) | | WORLD | | | 5.1 | 3.8 | 3.4 | | Price of crude oil (Brent) | 112.5 (8, Nov. 2011) | | 80 | 111 | 109 | 110 | Exchange Rate(USD/EUR) | 1.38 (8, Nov. 2011) | | 1.33 | 1.40 | 1.38 | 1.43 | Special Factors | 1 Japanese earthquake2 Sovereign debt crisis in Europe | Analysis of International Economic Environment a) World demand Table 1.1.2 GDP, Real Percent Change of Previous Year In 2011, the world in a whole is still suffering from 2008 financial crisis. Although world-demand is increasing, the growth rate is not very favorable. b) Economy of USA In United States, the growth rate of GDP has declined to 1.6%, well below its long-term average level. Given US is the largest economy entity in the whole world, the result of the declining...
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...Market Operations Discount Rate Reserve Requirement________________________________________ 2. Circle the correct symbol (⇑ for increase or ⇓ for decrease). What would happen to the money supply and interest rates if the Fed… a. purchased government securities on the open market? Money Supply ⇑ ⇓ Interest Rates ⇑ ⇓ b. raised the discount rate? Money Supply ⇑ ⇓ Interest Rates ⇑ ⇓ c. lowered the reserve requirement? Money Supply ⇑ ⇓ Interest Rates ⇑ ⇓ 3. With an easy money policy (expansionary monetary policy), the equilibrium supply of money(increase/decrease) while interest rates ________________. The (higher/lower) interest rates should cause investment expenditures to __________, this change in investment spending will cause Aggregate Demand to (increase/decrease). Therefore, an easy money policy is consequently appropriate for countering a(an) _______________ gap. 4. If a bank received a deposit of $10,000 when the reserve requirement is 25%,how much… a) will it hold as required reserve? __________ b) will it have in excess reserves? __________ c) is the money multiplier? __________ d) will total deposits in the entire banking system rise? __________ e) new money will be created by the lending activities of the entire banking system? __________ Part II: Graphing Monetary Policy (How does the Money Supply affect the level of investment, real GDP, and price levels?) 1. Use the diagrams below to...
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...5 Abstract This paper investigates the impact of real interest rate on national saving in five Association of Southeast Asian Nations (ASEAN) of Indonesia, Malaysia, the Philippines, Singapore and Thailand. We analyze impact real interest rate to nation saving for ASEAN starting 1991-2013. Through an analysis from Excel, real interest rate is found to have significant impact on national saving during different stage of economic. Extensions using a graph reveal the impact of real interest rate in ASEAN-5 and thus mainly reflect heightened concerns to national savings amid the Asian financial crisis and the global financial crisis. Keywords: real interest rate, national saving, financial crisis 1.0 Introduction The world’s average saving rate has been declining since the first oil shock and through the early 1990s. However this trend conceals a large and increasing dispersion of saving rates, particularly among developing countries. The large heterogeneity in saving behavior is associated to country and time differences in levels of development, growth performance, and fiscal and financial policies. The level of real interest rates has once again become the focus of policy makers' concerned. To understanding the response of national saving to changes in interest rates is central to many issues in economic policy. For example, a reduction in the budget deficit would probably cause interest rates to decline. If personal saving declined as a result, the overall increase...
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... C. increases GDP by $60,000. D. increases GDP by more than $60,000. 2. (4 points) All of the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a: A. book printed in 2009, entitled The Year 3000. B. 2001 Jeep Cherokee. C. year 2010 calendar printed in 2009. D. ticket to see the movie 2012. 3. (4 points) Use the model developed in Chapter 3, but assume that other things being equal, when the interest rate rises , consumption decreases. If there is a technological advance that leads to an increase in investment demand: A. investment increases and the interest rate rises. B. investment is unchanged and the interest rate rises. C. investment and the interest rate are both unchanged. D. investment decreases and the interest rate rises. 4. (4 points) If the Central Bank wishes to increase the money supply, it should: A. decrease the discount rate. B. increase interest paid on reserves. C. sell government bonds. D. decrease the monetary base. 5. (4 points) The costs of unexpected inflation, but not of expected inflation, are: A....
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... Complete the following table assuming that (a) MPS = 1/5, (b) there is no government and all saving is personal saving. Level of output and income Consumption Saving $250 $260 $___ 275 ____ ___ 300 ____ ___ 325 ____ ___ 350 ____ ___ 375 ____ ___ 400 ____ ___ 4. Complete the following table assuming that (a) MPS = 1/3, (b) there is no government and all saving is personal saving. Level of output and income Consumption Saving $100 $120 $___ 130 ____ ___ 160 ____ ___ 190 ____ ___ 220 ____ ___ 250 ____ ___ 5. Differentiate between the average propensity to consume and the marginal propensity to consume. 6. What are the marginal propensity to consume (MPC) and marginal propensity to save (MPS)? How are the two concepts related? How are the two concepts related to the consumption and saving functions? 7. Suppose a family’s annual disposable income is $8,000 of which it saves $2,000. (a) What is their APC? (b) If their income rises to $10,000 and they plan to save $2,800, what are their MPS and MPC? (c) Did the family’s APC rise or fall with their increase in income? 8. Complete the accompanying table. Level of output and income (GDP = DI) Consumption Saving APC APS MPC MPS $480 $___ $–8 ____ ____ ___ ___ ...
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...The Growth Record of the Indian Economy, 1950-2008: A Story of Sustained Savings and Investment Rakesh Mohan* I deem it a real privilege to visit the Institute of Economic Growth to deliver the keynote address at this prestigious conference on growth and macroeconomic issues and challenges in India. I am particularly happy that this Conference is being organised by the Institute as a part of its Golden Jubilee celebrations. The Institute has established a long and creditable track record of contributing to economic research consistently over its 50 years history. Its research has greatly enriched the debate on the conduct and formulation of economic policy over the years. The theme selected for the conference is befitting in the present context as we grapple with issues and challenges for sustaining the elevated growth momentum that we have now achieved. This has assumed added contemporary significance in the wake of expected moderation in global growth due to a projected slowdown in the US and some other advanced economies. Whereas emerging markets, including India have so far not been greatly affected by the financial turbulence in advanced economies, the increasing global uncertainties need to be watched and guarded against appropriately. Although our growth process continues to be dominated by domestic factors, we need to recognise some changing global patterns, which could have implications for the macroeconomic prospects of the Indian economy. Accordingly, in my address...
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