Interest Rates

Interest rate is a rate at which interest is paid by the borrower of the money to the lender of the money. We are now interlinking the interest rate with the macroeconomics. Many of the macroeconomics experts say that the financial sector is just a curtain between the savers and the borrowers. After the finding of the top researches, it is concluded that the central bankers have the tool to control alarming situations. It was also wrapped up that the price stability and the financial stability mandates are often orthogonal.

After 1994, the central bank has become more transparent about its intentions and is deliberations. However, many central banks have reduced their attention for quantity measures like monetary and credit aggregates. As the financial institutions are the organizations to create money. They lend out their money to start a business or to make a house and then they earn money from it. All the profit depends upon the health of the bank.

Interest rates are the major determinant of investment venture on a macroeconomic extent. By changing interest rates, the government organization is able to influence the interest rates faced by everybody who desires to borrow funds for financial investment. Investment can vary rapidly in reaction to the changes in interest rates and the total productivity.

Interest rates are a part of a purposeful policy by the central banks to dishearten the savings and persuade borrowing. It has also been observed as a way of enhancing the stock market and as a result generating a wealth effect for persons, and increase confidence.  Low real interest rates are linked with low potential returns on equities while the high rates are related with high prospect returns. Interest Rates play an important role in macro course as they affect buying and consumption conclusions made by customers, firms and administrations. Yes, it could be a reducing investment.

References

Mike Moffatt, What Are Interest Rates?, about.com, retrieved from, http://economics.about.com/cs/studentresources/f/interest_rate.htm