Economics

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In 10 years…

Posted by shartley13 on October 3, 2011

Discuss how inflationary pressures and increased interest rates will affect you in 10 years’ time

Increased interest rates whether it is now or in the future will have detrimental effects on young people such as myself in relation to purchasing a first home/taking out a mortgage. As the RBA tightens monetary policy through selling securities, it will have the effect of raising interest rates throughout domestic banks. As a result of this, taking out an initial loan will become more expensive and thus discourage me to take out a home loan. If however, I already had a mortgage, increased interest rates would raise the cost of interest on the loan and therefore leave me with less income to spend on other options. However, these high interest rates would encourage me to save and therefore give me a better return on my money. In this case, I would have additional spending money to invest in opportunities such as holidays and recreational activities.

Inflationary pressures in 10 years’ time would have a similar effect of interest rates in relation to causing me to have less disposable income. As the prices for household goods and services rises such as food, it would make me, and my family of 7, have less money to spend on this such as the cinemas. Consequently, my life would become more stressful and boring as there is more pressure to pay for goods and services and I would have less money to pay for this to entertain myself with.

-DL

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