What is the impact of inflation on interest rates?

Economics Inflation Questions



79 Short 80 Medium 46 Long Answer Questions Question Index

What is the impact of inflation on interest rates?

The impact of inflation on interest rates is generally positive. As inflation increases, the purchasing power of money decreases. To compensate for this decrease in value, lenders demand higher interest rates on loans to maintain their real return. Therefore, inflation tends to lead to higher interest rates.