Economics – Microeconomic decision-makers - Households | e-Consult
Microeconomic decision-makers - Households (1 questions)
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Answer: Interest rates directly influence the decision of whether a household chooses to save or borrow. Higher interest rates generally encourage saving, while lower interest rates encourage borrowing. Here's a table illustrating the trade-offs:
| Interest Rate Change | Impact on Saving | Impact on Borrowing |
| Increase | Encourages saving. Higher returns make saving more attractive. | Discourages borrowing. Higher cost of borrowing reduces the incentive. |
| Decrease | Discourages saving. Lower returns make saving less attractive. | Encourages borrowing. Lower cost of borrowing makes borrowing more attractive. |
The trade-off is that saving means foregoing current consumption, while borrowing allows for immediate consumption but incurs future costs (interest). Households must weigh these factors based on their individual circumstances, income, and future plans.