ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inflation rises when the Federal Reserve sets too low of an interest rate or when the growth of money supply increases too rapidly – as we are seeing now, says Stanford economist John Taylor.

Detailed explanation-2: -If interest rates fall, it’s cheaper for households and businesses to increase the amount they borrow but it’s less rewarding to save. Lower rates also tend to increase the value of wealth, such as people’s pensions or housing, compared to what they would have been.

Detailed explanation-3: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-4: -If you are a borrower, rising interest rates will usually mean that you will pay more for borrowing money, and conversely, lower interest rates will usually mean you will pay less. How much of an impact will all depend on whether your borrowing is tied more to short-term rates or longer-term rates.