Economics

Calculating Interest: Principal, Rate and Time are Known--I= p r t

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The level of interest rates in a free market economy are primarily determined by the rate of inflation, the demand for money, and the actions of the Federal Reserve. Lenders of money will generally demand what is known as a nominal interest rate which is equal to a real interest rate plus a premium to cover the inflation rate. The real, or inflation adjusted interest rate, is the percentage rate of return to a lender as measured by an increase in purchasing power.

Yale professor Irving Fisher's economic theory of interest rates laid the conceptual groundwork for establishing that the nominal interest rate equals the real interest rate plus the anticipated rate of inflation. Fisher's mathematical equations in his theory of interest rates are supported by empirical data. A comparison of comparable maturity U.S. Treasury securities, one of which has a fixed rate and the other an inflation adjusted rate, shows that the nominal interest rate always exceeds the real interest rate.

A consumer, whether a borrower or a saver, will generally be quoted a nominal interest rate by a bank on a loan or a savings account.

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expansionary fiscal policy position

Treasury bonds

lowering intrest rates (A+(

people may be reluctant to borrow

State and local governments carry most of the burden in paying for education.

It can lead to negative effects on the economic activity and can even cause a recession.

It causes a boom in spending and production that may not be paid back.

Monetary policy has a more direct influence on the private sector

Set standards for privacy and how patient information can be used.

ys cash benefits to qualifying workers who have lost their jobs.

Economic activity is rising above the point of the previous peak.

the amount of funds government is spending

Peak a+

Local A+

recession