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9 June, 12:16

If interest rates go up for a given product, quantity demanded will

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  1. 9 June, 13:55
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    Stipulated in the question, as interest rates (i/r) in the economic sense refers to the cost of borrowing and also the rate of saving for both consumers and producers, in the light of this statement, it can be evaluated in 2 aspects. First, if i/r of goes up, the cost of borrowing is increased, and this dissuades consumption of goods and services (products in this statement). Thus in this sense quantity demanded will fall for luxury goods, which generally takes up a huge proportion of an average household's income. Demand for necessities such as food will remain constant due to the nature of the good. Second, in terms of investment returns (or saving rate from increased i/r), there will be likely investment in the domestic economy. Hence the quality and quantity of products will improve due to such foreign direct investments which can possibly improve infrastructure and other capital goods of an economy over time. As such, demand for domestic goods are increased due to inflow of purchases from foreign investors. In some aspects, for a financially stable economy, a rise in interest rate will see a more proportionate increase demand from investments rather than a drop in demand from higher rates of borrowing.
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