11th grade economics
posted by Johnny on .
Why is it that the reward for capital is interest? I don't get how the business is rewarded interest, isn't it the banks?
Make sure you know the concise meaning of reward in economy. Reward means your benefit, to speak briefly. Personally, I'd rate your idea as correct because of the possibility to regard the problem from two perspectives: 1.) Business opens up an account for savings 2.) Business is offered credits by banks. It does depend on the point of view to elaborate on.
dongo is right, but I thought I would add this to it:
1)Banks don't get interest; they give it to businesses and the general public because the infaltion rate exists. Banks can only get the interest payments that businesses make after they get loans.
Besides that interest, businesses get more than they put in with their capital, meaning that they gain a different kind of interest. They don't necessarily put this in banks.
When granting credits to enterprises, banks will want to have s.th. in return. This is called interest as well. Inflation might also be a trigger for an increasing interest rate, however, it is surely not the main attractor for banks. Banks themselves constitute enterprises as well, interested in making profit.