Interest Rate And Its Effect On The Economy Essay

Interest Rate And Its Effect On The Economy Essay

Length: 717 words (2 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview


First, we must understand what inflation is, it is the rise in the price of goods and services, and this reduces the purchasing power. Therefore, when there is an indication that the inflation is rising or continues to rise this raises some eyebrows about the state of our economy. This take us to another mindset as far as costs, pricing and inventory, in-which, we begin to raise prices on products due to high inflation. However, it is an investor’s responsibility to research how much of a return their investments should make to continue to be sustainable. Therefore, an investor and/firm has the ability to protect their investments by the usage of inflation-indexed bonds or treasury inflation-protected securities, this protects them in the event of inflation. In addition, to inflation we have to understand how the interest rate will be affected. Therefore, interest rate derives from borrowing money, such as student loans. We borrow money to fund our education for a period of time. However, when dealing with investments we consider the Federal Fund Rate or (FFR) for borrowing money, w...

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Interest Rates On The Economy Essays

- Interest rates and the effects of interest rates on the economy concern not only macroeconomists but consumers, savers, borrowers, and lenders. A country may react and change their interest rates, according to the prosperity of their economy. Interest rates, is the percentage usually on an annual basis that is paid by the borrower to the lender for a loan of money (Merriam-Webster). If banks decided not to use interest rates, it would be impossible for others to be able to take out loans and therefore, there would be far less spending money in the economy....   [tags: Inflation, Money, Interest rate, Debt]

Better Essays
1462 words (4.2 pages)

Effects Of Interest Rate On Investment Essay

- PROVISIONAL TITLE An analysis of the effects of interest rate on investment in Zimbabwe (2009-2015). BACKGROUND AND PROBLEM STATEMENT Since the adoption of a multicurrency system in Zimbabwe in 2009, the Central Bank’s power to control or influence interest rates structure disappeared. It is the monetary policy instruments that give the direction of interest rates in an economy. The broad money supply is neither an option because of the simple reason that the Central Bank cannot influence that anymore due to the multicurrency regime that the country embarked on in 2009....   [tags: Investment, Economics, Inflation, Interest]

Better Essays
938 words (2.7 pages)

Essay on Interest Rates In The Economy

- Interest Rates in the Economy It has been an experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate day-to-day financial decision-making (Greenspan). This quote is from Allan Greenspan, the Chairman of the Federal Reserve Board who was arguably the most powerful man in the world. Greenspan was also extremely financially intelligent....   [tags: Economics Economy]

Better Essays
1519 words (4.3 pages)

Models of Determination of Interest Rates Essay

- The Interest Rate (IR) is considered as one of the most important economic factors affecting every household, firm and government all over the world. It is, as described by Parkin et al (2005), the opportunity cost of holding money, that is, the price of borrower are willing to pay for the use of the loan. On the other hand, it is also the compensation to the risk that lenders take in lending the money. (investopedia.com, n.a. 2003) By lenders and borrowers, it refers to individuals, businesses, financial instruments and governments....   [tags: UK England Economics Interest Rate]

Better Essays
1640 words (4.7 pages)

Central Bank's Influence On The Market In The National Economy Essays

- Define the role of the Central Bank and its influence on the market in the national economy. “Monetary policy is the process of supplying nominal money, look after the availability of money and cost of interest rate, which is controlled by the government or central bank, can be rather an expansionary policy, or a contractionary policy.” The expansionary policy is adopted to increase the whole amount of supply of money in the economy, and a contractionary policy is used to decrease the whole amount of nominal money supply....   [tags: US Economy]

Better Essays
1009 words (2.9 pages)

Interest Rates And Interest Rate Risks Essay

- Interest Rate Risks The rate of interest that banks set has a big influence on businesses, and so it will affect your shares too. For example, it may affect savings rates and mortgage rates, which may affects companies that rely on insurance companies, or companies that have mortgages on their property. Even bonds, which are fairly safe investments, are affected because interest rates may make them harder to sell in the free market, meaning you have to keep your money invested in them until their term finishes....   [tags: Investment, Stock market, Risk, Stock]

Better Essays
1382 words (3.9 pages)

Student Loans And Its Effect On The Nation 's Economy Essay

- As the years pass by, more and more college universities are gradually becoming more expensive in tuition, and other school-related expenses. Across the nation there are millions of college students who are in a way, “forced”, to take out loans through banks, their personal universities, or other financial aid services, because of their inability to fully pay for these colleges’ overwhelming expense fees. These loans being taken by students and parents across the nation may or may not always be paid back immediately-- some adults give testament admitting that they are still paying off their student loans from ten or twenty years ago, up to this day....   [tags: Debt, Loan, Default, Interest]

Better Essays
1011 words (2.9 pages)

Should Feds Continue with Expansionary Monetary Policy or Exit Strategy?

- Over the past few years, the Fed had been trying to heal the economy from the recession by lowering the interest rate near zero in order to raise the inflation, increasing the price of housing and household wealth. This will encourage more people to buy products or services, causing an increase in consumers spending. Based on the data given by the U.S. Department of Commerce today, the economy is now healing from the recession with the expansionary monetary policy. However, some people argue that it takes too long for the recovery to happen and suggests that it is time for the Fed to come out with an exit strategy....   [tags: economy, interest rate, employment]

Better Essays
850 words (2.4 pages)

The Wealth Effect Essay

- The Wealth Effect The "Wealth Effect" refers to the propensity of people to spend more if they have more assets. The premise is that when the value of equities rises so does our wealth and disposable income, thus we feel more comfortable about spending. The wealth effect has helped power the US economy over 1999 and part of 2000, but what happens to the economy if the market tanks. The Federal Reserve has reported that for every $1 billion in increase in the value of equities, Americans will spend an additional $40 million a year....   [tags: Wealth Effect Stock Market Economy Essays]

Better Essays
3906 words (11.2 pages)

Uncertainity In Global Economy Essay

- Introduction A student received his offer letter for the admission into GMBA course, he was working in Australia, so did quick calculation and came up with an amount that he was required to transfer in USD (US dollars) for admission fees. After two months, when he went to the branch of National Australian Bank to transfer the money to Citibank Dubai, he was surprised to know that he need pay around 35% more than his initial estimate ,due to increase in USD to AUD(Australian Dollars) conversion rate....   [tags: Economics Economy]

Free Essays
1365 words (3.9 pages)