What happens when you borrow money What happens

What happens when you borrow money? What happens when you save money?

Title and LO: How are businesses organised? Learning Objectives All will be able to explain what interest rates are and how they effect businesses and consumers MOST will be able to explain the impact a rise and fall in interest rates will have on a business SOME will be able to discuss the impact changes in interest rates have on a business and a consumer Working towards: P 5 “describe the influence of two contrasting economic environments on business activities within a selected Organisation”

What are interest rates? • http: //www. youtube. com/watch? v=GHHes. AN T 6 OM

What are Interest Rates • The cost of credit (borrowing money) is the rate of interest. It is expressed as a percentage (%). For example: • If a business borrows £ 1, 000 for a year at a five per cent interest rate, it would expect to pay back £ 1, 050, as £ 50 is five per cent of £ 1, 000 • For you. . If a business borrows £ 2, 000 for a year at a 10 per cent interest rate, it would expect to pay how much each year?

Effects of changing interest rates • Interest rates are used to control the level of e……. . a……. in the country and the business cycle Monetary policy is the regulation of the money supply and interest rates by a central bank, such as the Bank of England in the U. K, in order to control inflation and stabilize currency.

Effects – Rising Interest Rates and Consumers • How will a rise in interest rates affect consumers? • BUT - This means that overall demand for goods and services will …. .

Effects - Falling interest rates and consumers • How will falling interest rates affect consumers? • BUT • This means that overall demand for goods and services will …. .

Effects – Rising interest rates and business spending • How will a rise in interest rates affect businesses? • This means that production and economic activity in the country will …. .

Effects – Falling interest rates and business spending • How will falling interest rates affect businesses? • This means that production and economic activity in the country will …. .

Effects – Falling interest rates and business spending 1. Interest Rates goes up 2. Cost of a loan or mortgage goes up 3. Paying more on mortgage leaves less to spend 4. More reason to save as earn more interest 5. Amount people will spend in shops goes down 6. Businesses get less sales revenue as people spend less money 7. Businesses will employ less people 8. More unemployed people with no money to spend

What does this graph tell us? THINK PAIR SHARE 11

• Less sales revenue as less spending in stores • Less recruitment as less staff needed • Must focus on keeping costs low to continue making a profit Effects of rising interest rates on Tesco’s 12

Effects of rising interest rates on Tesco’s Stakeholders Suppliers: Customers: Government: 13

Effects of rising interest rates on Tesco’s Stakeholders Suppliers: • Reduced demand in stores sees Tesco order less, sales go down and then profit follows • More expensive to get a loan to buy machinery to expand production – growth is difficult • More unemployed people in an area allows costs to be reduced through paying lower wages to staff 14

Effects of rising interest rates on Tesco’s Stakeholders Customers: • Want to spend less as they want to save or are paying more towards loans – prices are more important • Service may be worse as Tesco look to reduce costs where they can Competitors: • Less sales as customers spend less • As customers are focused on spending less and look at prices, pressure is on for lower prices than Tesco 15

Effects of rising interest rates on Tesco’s Stakeholders Government • Want Tax – reduced sales as customers spend less means there will be less profit and therefore less tax. • Need to watch impacts of interest rate changes and correct if necessary with another rate change 16

• Less sales revenue as less spending in stores • Less recruitment as less staff needed • Must focus on keeping costs low to continue making a profit Effects of rising interest rates on Tesco’s 17