How Does Raising Interest Rates Control Inflation? |Inflation vs Interest Rates Explained|Think Econ

Have you ever been watching the news and wondering how raining interest rates helps with inflation? How are interest rates and inflation related? Well, look no further as that's the topic of discussion in this video!

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#InterestRates #Inflation #Finance

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[ThinkEcon]

Don't forget to like the video and subscribe to the channel if you found this video helpful! :)

[owenthomas]

Great video. Clear, informative, and to the point. Love it!

[fatimasulit]

Thanks for this! It will help me with my economic essay.

[danielbrink]

So in a Deflationary Environment it is just the opposite there is more supply then there is demand, so interest rates fall to make the cost of borrowing cheaper and thus promoting participation?

[rizwan]

Thank you. This was a very helpful explanation

[Jfokes]

So basically not spending your money will cause prices to go down because demand won’t be there so companies will be forced to drop their prices in order to get business back? So basically we are getting priced gouged and we need to stop supporting companies until they drop their prices?

[Climizz]

Helpful but what do you think Cambodia is? You know much about it? Is it fair to say I lend my friends money and I won’t get it back if they move to your country?

[jameslincs]

You have this backwards. Saving money is still spending as the bank lends it out (money never sleeps)

Interest rates are the cost of money. When governments lower interest rates they do so by printing money, thereby reducing the cost of money. So low interest rates cause inflation because it’s the same thing as printing money. If they print money faster than the economy grows then you get inflation.

Printing money gives low interest rates and inflation.
However, if inflation exceeds 20% then the economy becomes unstable and can enter a death spiral. And central banks don’t have too much control. It’s like driving a car with a sloppy stealing wheel and 10 minute delay between moving the wheel and the car changing course. Easy to crash a car like that.