The paper "Observed Levels of Interest Rates in the Market " is a good example of macro and microeconomics coursework According to DUFFY (2014). When making financial deliberations on where to invest, investors often base their decisions on stable prospects of growth in regard to economic and political stability. This prospect usually determines long-term investments such as insurance schemes and pension funds. Monetary policies that are accommodative of low levels of interest rates over the extended period's impact on economic investments both positively and negatively. The entire economy experiences a ripple when the Federal Reserve Board alters the interest rates within the markets.
Interest rates in most economies express their presence by affecting inflation, bonds, and recession. It is well within the economic-financial concept that the existence of lower interest rates amplifies the level of spending within a given economy. Viewpoint from investors and economists on interest rates In an economic environment, resources are usually inclined towards those activities that present increased returns for risks borne by the lenders. The adjustments of rates on interests by the Federal Reserve are usually predetermined by anticipated inflation coupled with other risks.
These offer a foresight of market signals on rates of the anticipated returns. Returns usually differ across the divide with the economy bearing a rate of interest that is naturally extrapolated and are respectively dependent on such factors as investments and nation’ s saving rates. In the event that economic activities are weakened, adjustment for anticipated inflation is triggered by monetary policymakers temporarily in order to lower the cost of borrowing. The economist perspective on lower rates on interest is based on the primary objective that decreased rates on interest act in stimulating the growth of the respective economy (DUFFY, 2014). Do the low levels of interest rates stimulate borrowing and thus hasten economic growth? FEDERAL RESERVE BANK OF ATLANTA, & FEDERAL RESERVE BANK OF ATLANTA (2016) propose that with low-interest rates individual businesses and companies are more inclined into making random purchases on properties such as cars and houses since they have disposable income.
This model of spending is due to the knowledge that they have been fairly charged on funds that they have borrowed. Lower interest rates also grant both the businesses and the farmers beneficial aspects that propel them to purchase large equipment since there are minimal costs that are incurred in borrowing.
It is therefore factual to state that there is a physiological ripple across the divide of consumers and businesses when the interest rates fall. Thus low-interest rates influence the productivity and output of a particular economy. Additionally, when investors want to invest in an economy, they do so by evaluating how the interest rates will directly impact on their investments. Federal funds rate act as major determinants of how the investors execute their investments. Interest rates also regulate the pricing of bonds.
There exist an inverse relationship between bond prices and interest rates in that low-interest rate elicit the plummeting of bond prices in an economy. Governments and businesses raise funds through the trading of bonds. High-interest rates normally increase the cost of borrowing implying that lower-yield bonds demand ultimately drops and the pricing drops correspondingly. In the event that these interest rates are low, the cost of borrowing is downgraded and thus many companies issue fresh bonds for financial expansion purposes.
This implies higher-yield bonds are put on demand and hence the bond prices move up (FEDERAL RESERVE BANK OF ATLANTA, & FEDERAL RESERVE BANK OF ATLANTA2016).
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