Which of the following best describes the relationship between inflation and interest rates?

Question

Quizplus · Accepted Answer

Inflation and interest rates have a causal relationship. Inflation can affect interest rates both directly and indirectly. When inflation increases, the cost of borrowing money also increases, leading to an increase in interest rates. Similarly, inflation can also lead to an increase in demand for loans, increasing the cost of borrowing and consequently leading to higher interest rates. Therefore, to fully understand interest rates, we need to take into account the effects of inflation.

Which of the Following Best Describes the Relationship Between Inflation