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What’s the correlation between interest rates and inflation and deflation. Why is there an increase or...

What’s the correlation between interest rates and inflation and deflation. Why is there an increase or decrease and when is there a higher demand for loans etc
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Answer #1

The interest rates play a major role in inflation and deflation .

When there is inflation in the market , then the interest rates grew up very fastly in order to fulfill the money requirements of the population . On the other hand , if there is deflation in the economy, then there is less demand for the products . Due to which no one take a loan which leads to decrease in interest rates .

On the other hand , if there are high interest rates in the market , no one can easily get the money by taking loans , as a result , the inflation in the market decreases and vice - versa .

If there are higher demand of loan in the market ( normally in the period of inflation) and the supply of loan is less , then it leads to increase in the interest rates . Because the increase in demand of a product tends to increase in its prices .

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