This paper presents a general analysis of models of determinations s of interest rate, which are relevant to the UK economy. Thereafter, the effects of changes in IR to the economy growth will be examined. Then a conclusion will be drawn to generate the key points the paper has mentioned.
Out of all, state of economy is the fundamental parameters of IR. (Toews, 2006) when an economy experiences a growth period, IR is decreased to stimulate the amount of money circulating in the market. Conversely, IR is relatively high when a stagnation or recession occurs.
Figure 1 illustrates the relationship between real GDP which represents the economic grow and IR over 40 years in the UK. In the late 1980s the UK experiencing a huge stagnation period and from the figure the IR was hig...
... middle of paper ...
...ch are beyond the scope of the essay to discuss.
Heakal R, (November 12, 2003). , Investopedia Inc. Retrieved April 8, 2006, from http://www.investopedia.com/articles/03/111203.asp
< How do interest rates affect inflation? >, (n.d.). Bank of England. Retrieved 4 April, 2006, from http://www.bankofengland.co.uk/education/targettwopointzero/inflation/ratesAffectInflation.htm
, (n.d.). Revision Guru.co.uk. Retrieved 5 April, 2006, from http://www.revisionguru.co.uk/index.htm
, (n.d.). WebFinance Inc. Retrieved 4 April, 2006, from http://tutorials.beginners.co.uk/finance/article/econrate
Parkin, M., Powell M., Matthews K, (2005). Addison-Wesley, pp 604 606
Toews, B. (n.d.). < Chapter 2 Assignment, Determination of Interest Rates>, retrieved 6 April, 2006, from http://people.wwc.edu/staff/toewbr/f441/Assignments/441%20Ch02%20Assignment.htm
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- Interest rates and the effects of interest rates on the economy concern not only macroeconomists but consumers, savers, borrowers, and lenders. A country may react and change their interest rates, according to the prosperity of their economy. Interest rates, is the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to be able to take out loans and therefore, there would be far less spending money in the economy.... [tags: Inflation, Money, Interest rate, Debt]
1462 words (4.2 pages)
- Loanable Funds and Interest Rate Determination Financial markets and individual institutions rely heavily on the determination of interest rates in order to gauge the supply and demand of loanable funds. Through a thorough understanding of how interest rates influence loanable funds, individual investors, businesses and governments can effectively increase revenues by following how economic forces will affect interest rates. Moreover, funds provided from various entities to financial markets create the supply of loanable funds.... [tags: Investment, Finance, Economics, Supply and demand]
1000 words (2.9 pages)
- How to get perfect calculations of Business loan interest rates. Description: If you think it is difficult to calculate Business loan interest rates, then you are wrong as it can now be easily done with the help of a special type of calculator. Business loan interest rates are a great matter of concern for both borrowers and lenders. Though these interest rates can be treated as additional financial burden for borrowers but they are earnings for the lenders. The interest amounts need to be calculated in a proper way for getting absolutely fair deals.... [tags: Debt, Loan, Interest, Personal finance]
2334 words (6.7 pages)
- Before discussing the economic literature on the relationship between interest rates and exchange rates in full, it will be useful to briefly discuss some of the important theories of exchange rate determination. There are many theories such as the theory of Purchasing Power Purchase Agreement (PPP), the Flexible Price Monetary Model (FPM), Sticky Price Monetary Model (SPM), Real Interest Rate Differential Model (RIRD), and Portfolio Balance Theory (PBT) of exchange rate determination. The PPP to maintain equality between domestic and foreign prices are based on the domestic currency through commodity arbitrage.... [tags: economics, interest, inflation]
837 words (2.4 pages)
- Self-determination is an incredibly important element of success. The concept of self-determination embodies an individual's actions in order to successfully achieve economic, social, and personal growth. Self-determination is seen in an individual’s vision, passion, actions, and discipline. Self-determination is a crucial skill to obtain, especially needed to successfully overcome periods of change such as transitioning into adulthood: moving from highschool to college or graduating from college and starting to work.... [tags: Problem solving, Self-determination, Autonomy]
988 words (2.8 pages)
- Interest Rate Risks The rate of interest that banks set has a big influence on businesses, and so it will affect your shares too. For example, it may affect savings rates and mortgage rates, which may affects companies that rely on insurance companies, or companies that have mortgages on their property. Even bonds, which are fairly safe investments, are affected because interest rates may make them harder to sell in the free market, meaning you have to keep your money invested in them until their term finishes.... [tags: Investment, Stock market, Risk, Stock]
1382 words (3.9 pages)
- Why do Toolbox Manufacturers Charge High Interest Rates and Mechanics are willing to pay for them. The high interest rates of toolbox financing provide benefits for the manufacturing company and the mechanics. The company increases their net income and the mechanic receives financing, convenience and the name brand. We have all been there. We walk into the garage of our mechanic’s shop, taking a quick glance; we see the huge elaborate toolboxes that each mechanic owns. Most of them are from Mac, Matco or Snap-On.... [tags: Finance Interest Mechanic Manufacturing]
876 words (2.5 pages)
- Lagging Earnings, Interest Rates Make Year-End Rally Unlikely Many European fund managers aren’t going to find anything good this Christmas to be merry about. In most years, particularly lackluster ones, there seems to always be the year-end rally that puts the fund managers performance up to the standard. And makes the woes of the year’s financial problems on either side of the Atlantic a little easier to swallow. To be sure, this hasn't been a year for the books. The DJ Stoxx 50 has inched up a miserly 0.8%, and the DJ Stoxx index is down 0.5%, with European stocks largely stuck in a trading range since March.... [tags: essays research papers]
568 words (1.6 pages)
- Interest Rates in the Economy It has been an experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate day-to-day financial decision-making (Greenspan). This quote is from Allan Greenspan, the Chairman of the Federal Reserve Board who was arguably the most powerful man in the world. Greenspan was also extremely financially intelligent.... [tags: Economics Economy]
1519 words (4.3 pages)
- The Fed and Interest Rates Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To quote, "Industrials Edge Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points Despite Interest-Rate Concerns." Why such a concern with interest rates.... [tags: essays research papers]
1148 words (3.3 pages)