Explain the forces that determine the rate of interest in an economy
Answers
An interest rate is the cost of borrowing money. Or, on the other side of the coin, it is the compensation for the service and risk of lending money. In both cases it keeps the economy moving by encouraging people to borrow, to lend and to spend. But prevailing interest rates are always changing, and different types of loans offer different interest rates. If you are a lender, a borrower or both, it's important you understand the reasons for these changes and differences.
Lenders and Borrowers
The money lender takes a risk that the borrower may not pay back the loan. Thus, interest provides a certain compensation for bearing risk. Coupled with the risk of default is the risk of inflation. When you lend money now, the prices of goods and services may go up by the time you are paid back, so your money's original purchasing power would decrease. Thus, interest protects against future rises in inflation. A lender such as a
bank uses the interest to process account costs as well.
plz mark as brainlist answer and follow mw so i an help u