Answer to Question #97883 in Macroeconomics for annie

Question

In 1990’s in Turkey, economy entered into depression. As a result unemployment rate throughout
the country has risen. Most people have lost all their savings, and their income was so low, that they were only barely able to survive. How would you expect these developments to affect the interest rate (or discount rate) in general in Turkey?

Answer 1

Increased unemployment rate and low incomes result to low savings in an economy. Low interest rates reduce the rewards of saving and hence discourages savings. Therefore when Turkey`s economy entered into depression the interest rates was affected negatively leading to low interest rates.