Worksheet On the Link Between Inflation and Interest Rates [TimeWeb]

SITEMAP | HELP | SAMPLE DATA | MIMAS DATA | SEARCH TIMEWEB

HOME : DIGGING : MEANING : WORKSHEET

Digging
  - Tour
  - Meaning
      - Explanation
      - Illustration
      - Worksheets
      - Review
  - Sourcing
  - Selecting
  - Verifying

Crunching

Buffing

Reference

WORKSHEET

The impact of lower inflation:

As inflation has fallen throughout many of the developed world economies, there has been an accompanying fall in interest rates.

Q1. Why would you expect falling inflation to go hand-in-hand with lower interest rates?
(Select one or more answers)

(a)

Borrowing costs can be cut without causing demand-led inflation and higher prices.

(b)

Interest rates do not need to be kept high to boost the exchange rate and avoid importing price rises through cost-push inflation.

(c)

Because it is illegal not to do so.

The return to the inflation levels of the 1950s and 1960s has seen a return to the costs of borrowing of those decades. An interest rate of 17 % in 1979, with inflation at over 20 % has been replaced with inflation below 2.5 % and an interest rate falling to nearly 5 %, in 2001.

Go to the TimeWeb sample data (you can do this at any stage in TimeWeb by using the link in the top navigation bar) and retrieve data for interest rates in the UK over the past twenty years. Use a chart to illustrate your findings.

Next worksheet in the series

Back to worksheets