Is it better for a national economy to have relatively low interest rates to encourage more borrowing or is it better to have relatively high interest rates to encourage savings? Why?
Generally speaking, low interest rates are better for an economy because people invest their money on more lucrative investment opportunities rather than depositing their money in the bank.
A low interest rate encourages consumption and credit. This will lead to greater investment and production. It is an orthodox path to economic growth. High interest rates work at times of great government need for resources - which risks damaging the economy.
Possible,selon la politique monétaire adoptée(politique expansionniste/déflationniste)
Yes, low interest rates on loans will aid poor rural folks to be able to borrow and invest in their agricultural productions for bountiful returns that would result in speedy economic growth of a country.
LOW INTEREST RATE may be good if managed correctly. Low interest rate would result in low demand of the country's currency, thus making import from the country cheaper to the outside market. At the same time, domestically, low interest rate may make cost of capital cheaper, and, thus, encourage businesses to expand. In the short-run.
HIGH INTEREST RATE may be good as a tool to manage domestic economy if there is a sign of inflation. High interest rate would result in contracted monetary supply in the economy; people would put money in the bank to earn interest. Although businesses would not borrow to expand when interest rate is high; but generally, high interest rate may occur after extended growth that would lead to inflation.
BALANCE HIGH AND LOW is important. The challenge is to know when to intervene; knowing the right moment. This is the duty of the central bank; it must closely monitor the economy and know the right moment when to announce changes of interest rate to reflect the condition in the economy.
So far as my knowledge is concerned, I think the status of the economy should decide the interest rate. For example when the economy is in the status of inflation, high rate of interest should be set while at the phrase of deflation, low rate of interest, which will encourage corporate houses to get loan at a low interest which will ultimately enhance the economy by way of production, employment and so and so forth.
Low interest rates spurs economic growth - Or that is the General Thesis!
Interest rates are an indicator of economic growth.
According to the JvNeumann formula:
increase=growth, pro-gression
decrease=stagnation, retro-gression
Saving is the sound foundation for investment.
Borrowing is the foundation of fiat banking.
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Money does not behave neutral to our economy.
https://mpra.ub.uni-muenchen.de/41973/3/The_Monetary_Quantum.pdf
Interest rates in Brazil are now at the lowest level in history. This led people with resources to put aside the old applications of public securities and to take more risks in the purchase of shares in companies - which brings possibilities for economic growth, income and employment.
Dear Colleagues and Friends from RG, Should interest rates be low or high? There is no universal rule in this matter except one that in a stable and effectively developing national economy they should not be high. It has happened many times that in a situation of serious financial and / or economic crises, interest rates were relatively high and / or rapidly changed. In the currently dominant standards of the role and function of central banking, shaping monetary policy, including shaping interest rates, the issue of interest rate changes is in many countries despite the formal and not always real independence of the central bank from the government's budgetary policy is used as an additional instrument of state interventionism. At present, also in the context of a threat to the country's economic development, a potential occurrence in 2020 of a strong decline in the country's economic growth caused by the development of the Koronavirus Covid-19 pandemic central banks under the pressure of the government are lowering already low interest rates in the hope that this additional instrument of state interventionism will work and through cheaper loans, it will reduce the scale of economic and corporate decline. Whether this mechanism of anti-crisis economic policy, including interventionist monetary policy, will work out in a few months. The decisions currently taken in central banking on a significant reduction in interest rates are aimed, in the short term, at preventing panic stock and bond sales developing on the stock markets and maintaining liquidity in the state's financial systems. In the longer term, however, the anti-crisis measures of interventionist monetary policy, consisting in making decisions in central banks with a significant reduction in interest rates, are aimed at counteracting the development of the economic crisis, i.e. counteracting a strong increase in unemployment, falling investment, enterprise production, citizens' income, etc. On the other hand anti-crisis state interventionism is aimed at counteracting the decrease in tax revenues to the state budget, thus counteracting the increase in the risk of a crisis in state finances and the possibility of serious social unrest, which could also result in some kind of political crisis. Using specific instruments of state interventionism, the government is trying to present its role to the citizens as an efficient team that develops and implements effective anti-crisis programs. However, on the other hand, the instruments of state interventionism used for these purposes, which have been used on a large scale since the era of the global financial crisis in autumn 2008, include the intervention purchase of junk loans and securities by the central bank from commercial banks and / or treasury bonds to ensure liquidity in state financial systems, including state commercial and public systems. This interventionist deleveraging of private and public entities is at risk of rising inflation because a large amount of additional money goes into the economy, which may not have any coverage in real economic goods produced. The government is trying to avoid the risk of hyperinflation, as then further macroeconomic problems as well as the risk of social unrest and the possibility of political risk would arise, e.g. by losing public support for society. In countries with democratic governance systems, the government takes these issues into account when making decisions. Currently, in the context of the possibility of a global recession and national economy with a simultaneous strong decline in economic growth by a few or several percent. in 2020, the governments of individual countries through central banks try to counteract the abovementioned threats. One of the interventionist, extraordinary anti-crisis measures is a significant reduction of interest rates. And what the effects will be in the real economy, we will see at the earliest at the end of 2020.
In view of the above, I formulated the following research thesis: The level of interest rates should be stabilized, possibly not too high, and adapted to the current needs of macroeconomic development of the economy. The role of this thesis is particularly important from the situation when the process of central interest rate shaping is used as an additional anti-crisis instrument of state interventionism.
Do you agree with me on the above matter?
Please reply.
I invite you to discussion and scientific cooperation.
Thank you very much.
Best wishes.
Dariusz Prokopowicz
while high interest rates can be a disinflationary tool, i still believe that low interest rates coupled with the right policies can work to achieve the same result. A country can raise interest rates to as far as between 45-50% say on personal loans with no intended result due to lack of confidence in the financial sector and other policies that a country has put in place. this is the current situation in Zimbabwe. a country with high unemployment levels, 60-70% informal sector, low production, low confidence levels on both the financial sector and policies, and higher inflation rates cannot only depend on higher interest rates to curb inflation and stabilise its exchange rate for growth.
In the shortest possible formulation of the answer to this question, I say that: Taking into account the relation of monetary policy to the level of economic activity and credit risk, the interest rate should be correlated with the level of the economic situation and the security of the financial system.
Greetings,
Dariusz Prokopowicz
In Brazil, we are experiencing the moment of lowest interest rates in history. Benefits: a) increased demand for loans, such as the difficult real estate financing sector; b) increase in family investments in the Stock Exchange; c) fall in public spending on interest payments.
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it is difficult to say if low or high interest rate is good or bad for economy. it depends on the stage of economy where the interest rate will be boon or bane for it. other factor like multiplier too work along with interest rate for an economy
Generally speaking, low interest rates are better for an economy because people invest their money on more lucrative investment opportunities rather than depositing their money in the bank. A low interest rate encourages consumption and credit. This will lead to greater investment and production.