This is “The Economics of Interest-Rate Fluctuations”, chapter 5 from the book Finance, Banking, and Money (v. 1.1). For details on it (including licensing), click here.

For more information on the source of this book, or why it is available for free, please see the project's home page. You can browse or download additional books there. You may also download a PDF copy of this book (8 MB) or just this chapter (714 KB), suitable for printing or most e-readers, or a .zip file containing this book's HTML files (for use in a web browser offline).

Has this book helped you? Consider passing it on:
Creative Commons supports free culture from music to education. Their licenses helped make this book available to you.
DonorsChoose.org helps people like you help teachers fund their classroom projects, from art supplies to books to calculators.

Chapter 5 The Economics of Interest-Rate Fluctuations

Chapter Objectives

By the end of this chapter, students should be able to

  1. Describe, at the first level of analysis, the factors that cause changes in the interest rate.
  2. List and explain four major factors that determine the quantity demanded of an asset.
  3. List and explain three major factors that cause shifts in the bond supply curve.
  4. Explain why the Fisher Equation holds; that is, explain why the expectation of higher inflation leads to a higher nominal interest rate.
  5. Predict, in a general way, what will happen to the interest rate during an economic expansion or contraction and explain why.
  6. Discuss how changes in the money supply may affect interest rates.