How Do Interest Rates Affect the Economy?

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Interest rates affect the economy positively when they are down and negatively when they are up. Find out how economic recession may change the way interest rates affect the economy with information from a registered financial consultant in this free video on interest rates.

Part of the Video Series: Money Management
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Video Transcript

This is financial adviser Patrick Munro talking about, "How do interest rates affect the economy?" Interest rates are set by the federal reserve and currently in America our federal reserve chairman is Ben Bernanke. We have had interest rate cuts over a period of time lowering the interest rate that banks lend to each other. This is a stimulus move in order to keep interest rates down and lending moving forward because that's the economic engine that drives America. However there's been a credit crisis as of late and banks are in a situation where they don't lend to each other because they're worried about portfolios that banks are carrying for bad real estate loans and things of that nature. So interest rates normally when they're set in a low environment are an economic stimulus. However when you get in a situation of a recession, all bets are off in that regard. So that's essentially what we're looking at. Interest rates do affect the economy in a positive way if they're down. And in a negative way if they're up. This is Patrick Munro talking about how interest rates affect the economy.


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