[Post 134] How does raising interest rates control inflation? | The Economist

Summary

When central banks raise interest rates, the impact is felt far and wide. Mortgages become more expensive, house prices might fall and unemployment can rise. So why do central banks do it? This film tells you why.

Personal Takeaway

1.A higher interest rate encourages people to save money and spend less. Lower interest rate = more spending; do not want to leave money in the bank

2.A central bank is a bank for banks; a commercial bank can deposit its reserves at an central bank

3.High inflation rate= higher interest rate

4.Difficult to predict when inflation will fall when interest rates are raised.