Monday October 18, 2004
Ok, so i’m in the media labs now waiting for tute to start. Should be doing my editing but thought i should take a bit of a break first.
I had a discussion with joe last night about something we heard on the news and we couldn’t come up with a conclusion, so i’m putting the question up here. I was watching the news last night and Sandra Sully said something about interest rates are rising and that Australia may be heading into recession. I don’t quite understand, how does a rise in interest rates cause recession? I take interest rates as those given and taken by banks when you take a loan or put in a FD, stuff like that, right?
Joe was saying that interest rates rises because there’s not enough foreign investors in the country, but he couldn’t explain why. Granted we’re both not business students and we don’t read Times magazine…so….maybe some of you economic students can enlighten me about this. Does that mean that the Australian currency would drop? What actually does recession mean other than that the country’s going broke? 
Hehe…here’s a chance for you guys to brush up on your economic studies. Boring blog….*yawn* i know….but i’m interested. So please help teach this poor ignorant girl a thing or two about the business world. 
hey its joe from the beach here.
i should know this cos of my economics degree, but i always forget this stuff. i’ll give it a go though.
basically, high or rising interest rates, make it more expensive to borrow money, for things like investment. with less investment, the economy grows much slower, and slow growth is, or leads to, in extreme cases, a recession.
i’ll try and read this up a little more in one of my textbooks.
hehe…ok, i did a bit of economics back in first year (that’s like 4 years back!) but let’s see if i can get this right.
higher interest rates – ppl would not be borrowing money to buy things, esp with things like houses and cars. instead, they would be more willing to put their money in bank deposits (because can collect high interest rates).
less spending in the economy, more money stagnant in the bank. money is not flowing. therefore recession.
does that make sense?
I do understand now…but how can recession help lower the interest rate or help money flow again? ;P
Hazel…sorry but i have to agree with Joe, i didn’t understand what you were trying to say…but thanks for trying to explain it to me…..too much jargon for a non-economic mind i think. hehehe…
Joe…you don’t have to…i don’t want to make you study just to answer my blog! hahah……but u can if you want to. 🙂
Maybe i should end this blog….it kinda feels like a formal economic forum now….:-P
It’s something like when you say you and Joe worked out that less investments coming into Australia, less money is there to flow around Australia. From the employer to the employee, the employee spend it and let another employer earn the money.. and flows all over.. We can see many companies has announced closing down and moving over to Asia due to high labour fees and high maintainance in Australia. (Some more this place is not strategic.. too far down under).
Due to lack of money to flow, and the high interest rates, resessions occurs. but why the interest rates increases? It encourages people to save.. and more money flows into the bank or financial company. Do you know that they don’t just save our money into a big safe like Uncle Scrooge McDuck? They use our money to do investments.. maybe on the stock market or what. More money go into the bank, more money is used up to invest.. so, by increasing the interest rates and more money going into them, it helps abit into the economy as more money is there to flow instead of all go into the properties…
I’m not a business student either.. took a econ subject last year and understand abit about all these. I hope the info I give is correct.. Cheers.. Good topic for a little discussion…
LOL hahahaha
yay macroeconomics! 😉
Basically, a recession forces the government, central bank (RBA) to lower interest rates to encourage people to invest/spend more money. It’s like a kickstart the economy.