Tradeoffs made Everyday

How a change in interest rate affects people and businesses’ decisions to spend/invest or save money

When the economy is weak, interest rates tend to go down to encourage people to spend and that creates a high demand for goods and services. In return, businesses benefit when interest rates are low. During such times, businesses increase their production to sell more and by doing this they increase employment rates that boost the economy. Increasing interest rates is also necessary to discourage people from overspending their money. Thus, when interest rates go up, people are attracted to save their money in the banks to have higher returns on their savings. The rate of borrowing money is also reduced as the cost of borrowing increases when interests rate rise. Nevertheless, when interest rates are high, the banks lose since people save more and borrow less and to encourage borrowing for investment purposes, the increase in interest rates is not too high. Thus, businesses may choose to borrow money from banks for investment purposes when interest rates are not too high although the rate of borrowing may not be as high as when interest rates are low (Brecht, 2015).

How an increase in wage rate might affect what people do with their time

People need to work to earn an income and they do that by sacrificing their leisure time to work, and the more sacrifices they make, the more they earn. For those people that are able to control the time they spend at work when the wage rate is high, some choose to work for fewer hours and others for more hours to earn more (PB, n.d).

Tradeoffs I made in terms of time or income

A tradeoff I made in terms of time or income, is when wage rates are high, I choose to allocate myself adequate time to rest to be more productive when I get back to work. By doing this, I am able to earn more income than when I work for more hours without rest. When I talk about the tradeoffs with my peers, some would argue differently as to why they find working longer periods when income is high is better than having enough time to rest. That is because the wage rate is not always high.

References

Brecht, K. (2015, October 9). 4 ways rising interest rates will affect your business. U.S. News. Retrieved from https://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/10/09/4-ways-rising-interest-rates-will-affect-your-investments.

PB (n.d). Principles of economics. Retrieved from https://opentextbc.ca/principlesofeconomics/chapter/6-3-labor-leisure-choices/.