Trends and fluctuations in nominal interest rates

Question

Quizplus · Accepted Answer

Nominal interest rates are affected by both the rate of inflation and real GDP. Inflation makes investors demand higher yields to compensate for the loss of purchasing power, while a strong economy leads to higher levels of investment and borrowing, increasing demand for credit and pushing up interest rates. Furthermore, central banks often use changes in interest rates as a tool to control inflation and stabilize economic growth, further linking nominal interest rates to real GDP and inflation.

Trends and Fluctuations in Nominal Interest Rates