TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > Interest Rates and Monetary Policy
Effects of an interest rates rise
- Increased cost of borrowing. This reduces demand for consumer durables purchased on credit.
- Higher opportunity cost of spending. This leads to an increase in saving as indivs postpone current consumption in favour of spending in future time periods.
- Increased mortgage repayments – reducing effective disposable income. (But increase unearned income from bank accounts)
- Higher interest rates have negative impact on share prices, and real and nominal house prices: negative wealth effect.
- So negative wealth effect and reduces current effective disposable income – spend less.
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