How inflation is tied to interest rate ?

Interests rates are just one of many things that affect inflation. If interest rates are low, people are more likely to borrow money to buy things. When more people are buying, manufacturers, distributors and stores are more likely to increase prices. Things are selling, so they can raise the price and make more money. When interest rates are high, people are less likely to borrow money to buy things because their payments increase with higher interest. Sales slow down. When sales are low, prices are less likely to increase because higher prices would reduce sales even more.

How inflation is tied to interest rate ?

I wish I knew........ I wish I knew..........

How inflation is tied to interest rate ?

don%26#039;t know

How inflation is tied to interest rate ?

I guess because if its a higher interest rate for borrowing will create inflation, the more money you have to pay to get loans, that is passed on to the consumer. Business%26#039;s get loans just like regular people, they pass the cost onto the consumer, But there are many ways that inflation is caused, like the falling dollar, not enough supply to meet demand etc..

How inflation is tied to interest rate ?

Don%26#039;t no (i%26#039;m 15yrs old)

maybe, the higher the interest rate, the more money is paid so therefore more money being in circulation.

Consequently, more money being around devalues the money so inflation rises....?

Hope its right

How inflation is tied to interest rate ?

Inflation is measured as the growth of the money supply in an economy, without a commensurate increase in the supply of goods and services. This results in a rise in the general price level as measured against a standard level of purchasing power. There is a variety of inflation measures in use, related to different price indices, because different prices affect different people. Two widely known indices for which inflation rates are commonly reported are the Consumer Price Index (CPI), which measures nominal consumer prices, and the GDP deflator, which measures the nominal prices of goods and services produced by a given country or region.

Mainstream economists%26#039; views on the causes of inflation can be broadly divided into two camps: the %26quot;monetarists%26quot; who believe that monetary effects dominate all others in setting the rate of inflation, and the %26quot;Keynesians%26quot; who believe that the interaction of money, interest rates and output dominate other effects. Keynesians also tend to add a capital-goods (or asset) price inflation to the standard measure of consumption-goods inflation. Other theories, such as those of the Austrian school of economics, believe that inflation results when central-banking authorities increase the money supply (Monetary inflation).

In one sentence, the higher inflation, the pricier things are, the more interest rates go up.

How inflation is tied to interest rate ?

Easy - think about how interest rates effect the supply of money in the economy. If they raise the interest rates, there is less money out there .... it costs more to borrow it. ..... however, if they lower interest rates, it makes it easier for people to borrow .... and thus more money out there.

Tie this to inflation based on the amount of dollars chasing the amount of goods. If everyone is packing hundreds, then prices will go up (inflation will go up). If no one has money, then prices will go down ..... eventually ..... and inflation will go down.

Hope this helps!

How inflation is tied to interest rate ?

My observation - and I%26#039;m not an economist - is that as spending increases so retailers increase their prices until they reach some resistance level from the consumer and they start being more cautious about spending. This is essentially inflation. Governments - always greedy for more cash then increase interest rates making credit more expensive so retailers stop raising their prices and inflation goes down. I think...

How inflation is tied to interest rate ?

According to Terry Savage on Chicago Tonight last night, if the dollar continues to slide the yields on long term Treasury bonds will fall and the price of bonds will rise. The fed has been playing with the %26#039;fed funds rate%26#039; (overnight rate) since Greenspan was appointed by Reagan in an attempt to prevent inflation. Greenspan has been credited for the low interest rates of the nineties. Some people are now blaming him for the poor real estate market because the prices of homes became inflated as more and more people were able to get financing with low interest rates. These people normally would never have bought homes. Now they cannot afford their payments. They are foreclosing. Banks are writing off bad loans. Credit is tight. The U.S. can%26#039;t attract foreign investment in the dollar anymore. We are all screwed.

How inflation is tied to interest rate ?

Now what was it that Chewey said??