Essay about Interest Rates In The Economy - 1528 Words

Interest Rates in the Economy It has been an experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a persons ability to handle the more ambiguous and qualitative relationships that dominate day-to-day financial decision-making (Greenspan). This quote is from Allan Greenspan, the Chairman of the Federal Reserve Board who was arguably the most powerful man in the world. Greenspan was also extremely financially intelligent. Being financially knowledgeable is essential in surviving in the financial world today. Even more important is educating ourselves about interest rates because they play a huge role in our economy. I believe higher interest rates will improve†¦show more content†¦That is just a glance at the interest rates fluctuation in the last ten years. Interest rates began in 1913 when the Federal Reserve Board was created. The Federal Reverse Board is a group of seven highly intelligent indi viduals, and essentially decides the interest rates for the people of the United States. The most important job for them to do is to set the federal funds rate, which is what banks pay each other for overnight loans (FunAdvice). The Federal Reserve Board actually changes what we call the federal funds rate. The federal funds rate is simply a target rate of what the interest rate should be, not actually the interest rate itself. However, the rate the Board does set is very close to the interest rate, or the actual rate consumers pay (Merriman 1). There are three main reasons why interest rates change. The first reason is supply and demand. If the demand for borrowing money is higher than the lender has available, the rates will increase. This would happen if the interest rates were raised during a low time in the economy. People then have no choice but to still borrow money. However, if there is not a demand for borrowing money, then the lenders will be competitive, lower their rates , and try to draw in anyone they can get. Inflation is another factor in the fluctuating interest rates. When inflation goes up, the interest rates follow because the lenders, such asShow MoreRelatedEconomy And Interest Rates Could Edge Down By Jon Hilsenrath1651 Words   |  7 PagesIn the Wall Street Journal Article â€Å"Fed Forecasts for the Economy and Interest Rates Could Edge Down† the author of the article Jon Hilsenrath wanted to address the future rises of interest rates that are soon to come and the effects that those rises will have on the now growing economy. Recently in the news there has been a great deal of talks of the future rises of interest rates in the United States. 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