rates are the
percentage rate that a borrower will pays to a lender in order to use the lenders capital for a specific
period of time. The Interest rate is known as the cost of borrowing
rates are increased to moderate demand or decrease to stimulate demands on
inflation. If the rates are set too low, this could encourage the
buildup of inflationary pressure, if the rates are set too high, then demand will be lower than necessary to
control inflation. Interest rates vary and are not guaranteed to stay constant.
Inflation expectations can also be estimated but
comparing market rates for nominal and indexed bonds. The central bank observes
and measures inflation. The central bank (Federal reserve) checks and makes sure that inflation expectations are
having the desired effect. Inflation definition is increase in prices for products and
services. It is a result of consumer’s preference for products and service over money. Inflation
has been and is still being restrained by the fall in prices for imported consumer goods, an unexpected high
level of competition in domestic markets and increase cross - border labor flows.
Lenders (banks) lend the consumer (borrower)
money charging them an interest rate. Banks (lenders) remain at the centre of financial
system. The credit risk is the most important risk banks face. The central Bank monetary
policy significantly affects financial stability. Banks are normally safer
because the government agency gives some guarantee to the banks. Priority is for safety of
Interest Rate are the prices for goods and
services and as such they convey real information about scarcity in the world. Interest rates is defined as a securities for which payments is made for an
asset. In a single period setting, securities can be termed
riskless. Interest rates is the annual percentage of the total amount
borrowed. For example, if borrowed $5000 at an annual interest rate of five percent, at the end of the year
you’ll over $5250.
The way the economy grows may shed light on what
determines the real interest rate in the long term. The long-term real
interest rate is determined by economic fundamentals such as productivity and population growth and household
spending and savings.