How interest rates affect peoples purchasing decisions Assignment

How interest rates affect peoples purchasing decisions - Assignment Example The paper explores four types of writing at our most recent workshop. They are summary, analysis, synthesis, and evaluation. Some of the key differences between them were highlighted. An analysis provides a detailed examination of an article in order to make inferences while an evaluation is an informed judgment arising from an assessment or appraisal of a situation. A summary provides a brief but concise version of an article while a synthesis involves combining separate elements into a coherent and connected whole in order to make a new point. The level of interest rate determines whether people save or consume. At higher levels of interest, some persons save more and consume less. According to Pashigian, a higher interest rate makes current consumption relatively more expensive compared with future consumption. This is a result of the substitution effect that induces the consumer to reduce current consumption and save more. A rise in the interest rate also leads to an increase in wealth for savers as it increases the returns to savings. However, when the interest rate falls there is less or no incentive to save and so people prefer to spend their income on consumer items such as cars, clothing, jewelry, and appliances. Some of these consumer items are financed through borrowing. This confirms the fact that people tend to spend more on consumer items when interest rates are low.