Money and Banking:Relationship between interest rates and inflation.
Relationship between
interest rates and inflation
– According
to one measure of what U.S. consumers pay for goods and services, prices in December
2022 rose 6.5% compared to last year, down from 9.1% in June. The June inflation rate marked the fastest
pace of inflation since November 1981 based on this measure of inflation. Other countries are experiencing similar
surging prices of consumer goods and services.
For example, the annual rate of inflation in the euro-zone was 9.2% in December,
down from 10.1% in November. Our global
community, as a whole, is dependent upon it’s currencies as a means of exchanging
value. Each country’s currency has
purchasing power which changes over time with inflation. It is important to internalize that inflation
has an important effect on the purchasing power of money, or money’s
value. Money’s value can be captured by
the inverse to a representative price index. A rise in inflation leads to a
decline in the value of money and negatively influencing an individual economic
agent’s level of real consumption of goods. If the agent is not properly
compensated, this could negatively influence her willingness to abstain from
current consumption, that is, deferred current consumption by saving. One way
to counter this affect is to attempt to adjust interest rates by adding an
amount to compensate the agent for expected changes in the purchasing power of
money.

Discuss
and show how interest rates and inflation are related through a discussion of
the different types of interest rates, the market equilibrium for the supply of
and demand for bonds, and the historical relation between inflation rates and
interest rates. Discuss what the real
rate of interest is; why the real rate of interest in theory is the rate that
brings into equilibrium ex ante savings and ex-ante investment spending (on
business equipment, residential housing; commercial real estate, business
inventory, etc.). How the realized real rate of return is the nominal interest
rate less the inflation rate that actually occurs. What is the different between the real rate
of interest in the first sentence and the one indicated in the second
sentence? To get started take a survey
of family members and friends on what they think the interest rate is. Report these answers in this section of your
paper. Use these answers to write this
section. There answers will give you a
chance to discuss what WE mean by the term “Interest Rate.”
615917
an hour ago
Relationship between interest rates and inflation – According to one measure of what U.S. consumers pay for goods and services, prices in December 2022 rose 6.5% compared to last year, down from 9.1% in June. The June inflation rate marked the fastest pace of inflation since November 1981 based on this measure of inflation. Other countries are experiencing similar surging prices of consumer goods and services. For example, the annual rate of inflation in the euro-zone was 9.2% in December, down from 10.1% in November. Our global community, as a whole, is dependent upon it’s currencies as a means of exchanging value. Each country’s currency has purchasing power which changes over time with inflation. It is important to internalize that inflation has an important effect on the purchasing power of money, or money’s value. Money’s value can be captured by the inverse to a representative price index. A rise in inflation leads to a decline in the value of money and negatively influencing an individual economic agent’s level of real consumption of goods. If the agent is not properly compensated, this could negatively influence her willingness to abstain from current consumption, that is, deferred current consumption by saving. One way to counter this affect is to attempt to adjust interest rates by adding an amount to compensate the agent for expected changes in the purchasing power of money.

Discuss and show how interest rates and inflation are related through a discussion of the different types of interest rates, the market equilibrium for the supply of and demand for bonds, and the historical relation between inflation rates and interest rates. Discuss what the real rate of interest is; why the real rate of interest in theory is the rate that brings into equilibrium ex ante savings and ex-ante investment spending (on business equipment, residential housing; commercial real estate, business inventory, etc.). How the realized real rate of return is the nominal interest rate less the inflation rate that actually occurs. What is the different between the real rate of interest in the first sentence and the one indicated in the second sentence? To get started take a survey of family members and friends on what they think the interest rate is. Report these answers in this section of your paper. Use these answers to write this section. There answers will give you a chance to discuss what WE mean by the term “Interest Rate.”