Interest Rates And Economic Growth

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Principles of Economics Term Assignment


Title No. Particulars Page No.
1. Introduction/Significance of the Problem 3
2. Analysis 4
2.1 Illustration on the basis if analysis 6
3. Conclusion 9
4. References 10

Title 1
Introduction and Significance of the problem
Economic growth of any country reflects its capacity to increase production of goods and services. The simplest definition of economic growth can be stated as the increase in the Gross Domestic Product (GDP) of that country that is the amount of goods and services produced within a country. Interest rate is one of the macroeconomic growth factors to economic growth, with its up’s and down’s the Interest rates
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Depending on the credibility of the borrower, the fixed payback period is stated. While determining the interest rates, the payback period, the payback currency, and many more determinants of a loan are considered before the loan is given. For example, a company borrows capital from a bank to buy new assets for its business, the bank would grant the loan at a certain interest rate that would be paid in instalments by the company over a fixed period of time decided, whereas during the time of the loan, the bank would in return receive rights on the new assets as collateral till the loan is paid back in full with interest. A commercial bank can usually borrow at much lower interest rates from the central bank that companies can borrow from the commercial bank, the difference at which the bank borrows from the central bank and to which it lends to its customers is where the bank earns its profit.
There are two types of interest rates the Nominal Interest Rate and The Real Interest Rate, the nominal interest rate is the rate that we see in daily lending, it is the amount, in percentage terms of the interest payable example: Dhruv deposits 100$ in his commonwealth bank account for one year and then receives interest of $10, at the end of the year Dhruv’s balance is $110. In this case, the nominal interest rate is 10% per annum
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