What does this mean?
It means that the higher interest rates are, the lower the amound of money needed in the market at that time, which results in either the money supply shrinking(deflation) or interest rates(IR falling) to allow borrowing of money at the level the market demands. Conversely, in a situation where the IR is dropped below the efficient level(E), the quantity demanded is greater than the supply of money, so either the money supply increases(inflation) or IR rises to get closer to equilibrium. Guess which one is the current situation and which one was the situation in the 1970s...
1 comment:
Dear Mr. Economist,
I have a question or rather a request will you be open if guests of your blog will post questions when they can not understand your explanation or your instruction/economic lesson/s?
Like me for example - for the life of me I've read this particular post and looked at the graph and I still could not get it... well, this is what I think I gleaned from your post... that it all depends! In other words, inflation can be seen as a positive but it depends... and interest rates going down can be good or bad because it depends... but my question is - it depends on what? Supply of goods supply of labor - demand for goods and labor!?
Let's say- the Fed it will increase the interest rate by 1% this week or next month... is it a good thing or a bad thing?
What if they say they will lower the rate by 1% this week or next month ist it good or bad?
If I sound like Andy Rooney - well, you need to excuse me - because I'm really confused! Help!
Btw, I am glad I found your blog through Mr. R. Haecker and I do appreciate your passion for Economics and Politics and your zeal to educate the public (common folks like me) on how economics works -- making it simple enough for us to understand!
I don't know if I ever say it to you or Mr. Haecker or Mr. Haecker's other friends that there must be something special with the San Antonio's air, water or soil as I've never met or stumbled upon a group of young intellectuals in the same vicinity -- like in a cluster... oh, I've met a few where I live but have not seen them in a cluster -- what is even rare and amazing is they are friends... like the group of friends Mr. Haecker has. And as I told Mr. Haecker may your friendship last and stay strong! And you all should run for public office!
The country - our country is in dire need of real man with palpable manly virtues who can LEAD!
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