What factors have combined to determine the current general interest rates? Is the current interest level one that promotes or retards growth in the economy? Explain your reasons.
There are a number of forces that must be taken into account when attempting to evaluate the current and future movement of interest rates. To begin with, interest rates are strongly influenced by the condition of the U.S. economy. When the economy is growing, consumers have jobs and savings to lend through banks, but they must also borrow for large items, such as homes or cars, or to finance other purchases through credit cards. As the demand for funds increases, interest rates rise and act as a ration for the funds available. Of course, the opposite is also true; when the demand for funds is low, interest rates fall.
Inflationary pressures will also affect interest rates, because the rates paid on most loans are fixed in the loan contract. A lender may be reluctant to lend money for any period of time if the purchasing power of that money will ...
The solution answers the question below.