Interest rate
Definition. The interest rate is the cost of borrowing money or the reward for saving, expressed as a percentage of the sum borrowed or saved over a period of time. As an instrument of monetary policy, changes in the interest rate influence consumption, investment, and therefore aggregate demand.
A lower interest rate reduces the cost of borrowing and the return on saving, encouraging spending and investment, while a higher interest rate has the opposite effect.
This term belongs to Monetary Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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