External Economic Consideration; Interest rates (10)

A small business is affected by different area, among them economic factors are most important.
Economic factors are:
           
             1. Interest rates
             2. Fiscal policy
             3. Exchange rate
             4. Unemployment rate
             5. Inflation rate

Interest rates

Interest rate is the cost of borrowing and return for saving.
A business will be affected by interest rates in two ways.

1.When interest rates increase the borrowings will be low therefore investment level of the country will be low.
Another negative affect is that when the interest rates are high people will save more rather than spending on
consumption.This will reduce the demand for the product.

2.On the other hand when the business interest rates are low people will borrow from banks and invest in the
business,it is favorable to the business.Another advantage is that when the inrest rates are low people will not
save as return will be low.They will spend more on goods and services which increase the consumer demand for products.