Yusra3
Banned
Inflation affects interest rates by changing the value of money.
If inflation is high, then the value of your dollar will go up. That means you'll have more money to spend on things like cars and houses, which means you'll have more money in your pocket to pay back loans or buy stocks. This makes it cheaper for you to borrow money from a bank or other lender. so they'll lend less money at higher rates than they would have otherwise.
On the other hand, if inflation is low, then the value of your dollar goes down and so does the price of everything else that uses dollars as an exchange medium (like cars). This means fewer dollars in your pocket at any given time, so lenders will charge higher interest rates on loans in order to make sure they're able to get their money back before too long.
If inflation is high, then the value of your dollar will go up. That means you'll have more money to spend on things like cars and houses, which means you'll have more money in your pocket to pay back loans or buy stocks. This makes it cheaper for you to borrow money from a bank or other lender. so they'll lend less money at higher rates than they would have otherwise.
On the other hand, if inflation is low, then the value of your dollar goes down and so does the price of everything else that uses dollars as an exchange medium (like cars). This means fewer dollars in your pocket at any given time, so lenders will charge higher interest rates on loans in order to make sure they're able to get their money back before too long.