Policy Tools - Interest Rate

The interest rate is a vital tool of economic management for the government. Adjusting the interest rate is a key part of the government's monetary policy . The interest rate tends to be used as one of the main tools to control inflation. It is possible to change the interest rate in the Virtual Economy model and see the effect both on the macroeconomic variables and also on individual families.

To help understand the effects of interest rate changes on the economy, there are a variety of resources:

• An explanation of the interest rate and how it is set
• Relevant theories about the interest rate
• A worksheet to help see the impact of interest rate changes on the economy