Explain how the discount rate affects the interest rate charged to consumers

Question

Social Studies

Nathanial Rasmussen

9 April, 07:51

Explain how the discount rate affects the interest rate charged to consumers

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Nicolas · Answer 1

Discount rate will influence the interest rate charged to consumers, the higher the discount rate higher tends to be the interest rate.

Explanation:

The discount rate defines the value of cash flow in future, it is the rate imposed by the Reserve Banks on commercial banks for short-term loans. While the interest rate is the actual cost of borrowing money the consumers will pay. When the discount rate is low it will encourage more lending and spending by customer and businesses. If it is high, it will have a contradictory monetary effect and decrease economy and expenditures of consumers and business.