Interest Rates and the Economy Essay Example | Topics and Well Written Essays - 1500 words

Interest Rates and the Economy - Essay Example Now, the ability to ascertain credit at reasonably favorable terms i.e. good interest rates is something that households and businesses alike, regardless of their area of participation, must do themselves without any outside party determining or even influencing the terms of the final agreement between the borrower and the lender. Now, the floor interest rates which are present in the world and especially in our country initiate the process of the full recovery of the economy, however, it is distinctly important to understand that an easygoing and overtly mundane or banal economic recoil makes market analyst ponder over the notion that whether interest rates happen to be a factor that is critical enough in size and important than it can actually steer an entire economy without assistance or fail. If we conduct a thorough historical analysis of the world economy since the turn of the century, we will notice that the current recession which is ravaging the global economy has been cause d by a number of reasons, all of whom have been aired and given enough attention over this period, however, a critical factor in the downfall of a dynamic and well performing global economy have been a string of interest rate augmentations in 1999 and 2000. Given the fact that increasing the interest rates could certainly put to an end the promise of a burgeoning economy which has the potential to expand and influence the global economic, then it is important to note that the opposite of the above statement must also be true and should be put forth as an completely independent notion which states that decreasing the interest rates of the country could certainly boost an ailing economy and provide it with the impetus that it requires to rebound its way towards recovery and re-establishment. This way of reasoning, however, is not completely fool proof and without any loopholes. The real analogy that can be used, or perhaps that should have been used in this case is that the difference between the two is pulling on a rope and pushing of the rope in the two cases which we have just explained earlier; here pushing the rope is the instance of lower the interest rate in order to jumpstart the economy and boost its performance during a period of regression or stagflation. The recovery of the economy in 2004 has moved onto such a mature stage at the point when the author was formulating his opinion on the said matter that actually empirically showing whether we can ascertain that decreased interest rates were the reason that first immunized the economy and then brought the economy back from the dead to life, all against a backdrop of a general contamination of the economic melancholy that was being experienced at the time Professor Larry Allen was formulating his piece on the correlation between interest rates and the revival of an economy. Theoretical framework: A lot has been said about the interest rates and the economy in general but we have not discussed the theory of this specific occurrence as yet. Here, we will try to