What is the effect of a rise in Interest rate on the level of growth in the economy?
A rise in Interest rates provides an incentive to save money rather than spend, reducing investments and consumption. As a result economic growth is likely to decreaseThe value of the pound will increase as saving money in England becomes more attractive for foreign investors. The price of British exports will rise and consequently imports are cheaper. This results in a worsening balance of payments.The overall effect is a slow down in the economy.
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