Interest Rate And Its Effect On The Economy Essay

Interest Rate And Its Effect On The Economy Essay

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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...

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