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Within a country, who (which social groups) are likely to favor from a low interest rate?

Economics Dec 14, 2020

Within a country, who (which social groups) are likely to favor from a low interest rate?

Expert Solution

Low-income earners are more likely to favor a low-interest rate.

Statistically, low-income earners tend to borrow more from banks or other financial institutions. These institutions often charge an interest rate on top of the principal amount (the amount borrowed), which acts as their profit. When interest rates are high, borrowing becomes expensive, thus making it inaccessible to most people.

On the other hand, when interest rates are low, debts become cheap. Additionally, high-income earners are likely to oppose low-interest rates because it affects the returns they get on their savings since they tend to save more as compared to borrowing.

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