States & Economic Policy - Advanced Training Debate Workshop: Week 6 (Term 2)

[@qylv5138]

Hi, I think there might be an error as to central bank's response to recessions. As you mentioned that by lowering interest rate and getting another loan, people can pay less on existing debt. This is not the case because the former debt is still paid according to the higher interest and the latter debt is the lower one. For example, assuming I borrowed 100 dollars when the interest rate was 80%. Even if when the interest rate drops to 10% and I get another loan to pay the 180 dollars. Right now I still need to pay back 198 dollars. To sum up, this mechanism doesn't seem to efficient at all. What's your response to this?

[@rhyssteele3995]

The point is that interest accumulates with time. If the interest rate lowers then debt refinancing allows me to switch to paying at the lower interest rate. For example, say I owe a debt of $1000 that is accumulating 5% interest per week but I can take out a loan of $1000 that has an interest rate of 1% per week on the repayment. Then if I do nothing then in a weeks time I owe $1050 on my original debt. However if I immediately take out the loan so that I have $1000 and immediately use that $1000 to pay off my original debt, the interest rate of that debt doesn't matter because I paid it off now. But I now have a new debt on the loan I took out, which accumulates interest at 1% per week. So in a weeks time, I owe $1010 to whoever gave me the loan. That means this refinancing process saved me $40 that week. (sorry this reply took a while, I have only just seen this comment)

[@jnwilliams1986]

Hello, I am a Econ policy major and enjoyed the video! Thanks for posting this information!

[@ManchesterDebatingUnion]

Thank you!

[@kingofdot2993]

Incredible

[@tomedwards7940]

Hugely helpful for an econ noob

[@ManchesterDebatingUnion]

Thank you!