Discuss the relationships which are suggested to exist between interest rates,inflation rates &

Discuss the relationships which are suggested to exist between interest rates,inflation rates %26amp; exchange rates

Discuss the relationships which are suggested to exist between interest rates,inflation rates %26amp; exchange rates

In general: Lower interest rates --%26gt; higher money supply --%26gt; higher consumption -%26gt; higher investment --%26gt; higher income --%26gt; higher prices --%26gt; inflation

Lower interest rates (while the other country%26#039;s interest rates the same and higher than the domestic interest rates) --%26gt; money goes away from the country which has lower interest rates --%26gt; and goes to the country with higher interest rate --%26gt; exchange rates goes lower for the domestic curency (for example, money goes away from dollar and goes to Eurozone --%26gt; higher Euro, lower dollar)

As you can see, is a chain reaction. Interest rates is the crucial factor.

I hope this helps