Scarcity is an important concept in Economics.
scarcity: "an insufficiant amount of supply"
An item that is always scarce is money.
Interest rates: The cost of money
As they say, what goes up must come down, with money it is: what goes down, always goes up...in interest (as well with the other way around). It has been said by Canadian Economists that the interest rates of the Canadian Dollar is heavily influenced by the Americans. Our dollar can be higher or lower, but never fully independent. When the Canadian economy is doing better, the bank may not have to mimic the moves of the Americans and build on the road of a stronger economy for our country.
The ever changing rate of money is due to supply and demand. By raising the interest price it puts a limit on the supply of money making the demand go down. When the interest rates from the bank go down, it is a signal that the economy is busting. Low interest rates attract businesses and companies to borrow more, ultimately making the economy rise again. When interest rates are high, it shows that the economy is very strong and can afford to charge that high because the demand is high. However, interest rates can't go high or else it will result in inflation.
In Canada, it hit 40-year lows in interest rates during 2004, now it is steadily going up but rates depend on a number of factors. The bank of America and the status of the Canadian economy. Inflation also plays a big role because the bank does no want inflation to happen, so they change the interest rates accordingly.
With these decisons on interest-rates that are made eight times a year, they must be made wisely or else it will greatly impact our economy and make a huge difference from either boom or bust. If we take advantage of the wealth we have in our country, the economy here will definately go down and interest rates will go down in an attempt to save the economy and give it a boost. However, there are also scarce natural resources that give reason to our economic status. The resources must be carefully decided on its purpose inorder not to go into an economic depression. Thus, it is why we have the study of Economics. It is the study of we make decisons regarding the use of our scarce resources.
http://www.cbc.ca/news/background/economy/
1 comment:
If we look at it that way, the interest rate being high meaning that the demand is also high, but people will soon won't be able to afford that high of an interest and it will drop. Interest always effects the economy, such as buying cars, a house, and many other things too. So I agree that we have to manage it carefully and obtain a better market
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