Interest rates change as the result of changes in the supply and demand for money.

Question

Quizplus · Accepted Answer

The supply and demand for money are the primary factors that affect interest rates in the economy. When there is a high demand for money, such as during periods of economic expansion or inflation, interest rates tend to rise. Similarly, when the supply of money is low, such as during a period of monetary policy tightening by the central bank, interest rates also tend to rise. Conversely, when there is low demand for money, such as during a recession, interest rates tend to fall. Therefore, changes in the supply and demand for money directly impact interest rates in the economy.

Interest Rates Change as the Result of Changes in the Supply