Answer to Question #305348 in Microeconomics for Yashika

Question

How do interest rates affect household savings

Answer 1

Interest rate is used to determine the amount of interest that will be paid for saving a certain amount of money. When there is an increase in interest rates households will be willing to save more to enjoy the returns hence it encourages savings. On the other hand, a decrease in interest rates reduces the reward of saving hence discouraging savings.