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/biz/ - Business & Finance

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1446798 No.1446798 [Reply] [Original]

What happens when interest rates are high and what happens when they're low /biz/?

I got asked this in a consulting interview earlier today (one of the big boys) and it absolutely stumped me at how open ended it was. I mumbled some stuff about consumer spending but had shit all else.

>mfw

>> No.1446817

Just wanted to clarifying i thought it would have different effects on the banking sector and other sectors but didn't say this. I reckon I should have.

>> No.1446825

>>1446817
clarify*

>> No.1447739

Ask yourself, would you prefer taking out a loan at a higher or lower interest rate? Now, apply that rationale to society as a whole.

>> No.1447743

When interest rates increase, investment decreases and the money supply of an economy is essentially contracting.

>> No.1447951

>>1446798
What kind of consulting?
>>1447743
What anon said. Macro 101. When interest rates are low, this incentivizes people to invest. When they are high, investment decreases. Think of the housing bubble. There were several contributing factors, but interest rates were very low, which caused an abundance of people, majority unqualified, to purchase homes

>> No.1447964

When interest rates are low>>1446825
GDP increases

Y=I+G+C+NE mr. apeman
Where I = investment

This is theory

>> No.1447968

How the fuck you got an interview without even knowing the most rudimentary economics is beyond me desu

>> No.1447994

>>1447951
Are you fucking retarded? That's not what happened

>> No.1448030

I'm a total retard NEET /not/ being interviewed for a job and my understanding is that it's pretty simple on the surface. Low interest rates encourage lending, higher interest rates discourage it. Intuitive. The effects of this I'm not 100% certain of on the large scale, I would expect that consumer spending would rise when people have more access to money, and that investment would increase as people could borrow money and invest it for a profit. Though I'm not sure what actually happens. Someone said it discourages investment.

>> No.1448042

>>1446798
>trying to become consultant
>doesnt know basic microeconomics taught in 9th grade

>> No.1448055

>>1447951
dumbfucker. its the other way around, low interest rates = more spending and vice versa. go back to school

>> No.1448335

>>1447739
>>1447743
>>1447951
>>1447964
>>1448030
>>1448042
So what's better for banks then, a low interest rate or a high one?

Cos what im hearing is:

High interest rate = less borrowing BUT more profits cos of the net margin spread being greater

Low interest rate = more borrowing meaning more revenues BUT less profits cos of the net margin spread being smaller

If you were a bank which would u rather have?

>>1447951
Management Consulting

>> No.1448350

>>1448335
Banks like higher rates since it increases net income from loans.