Sustainability of Economy: Inflation vs Interest Rates

Abstract

An economy is said to be sustainable when there is harmony between various economic factors, including inflation and interest rates as they play a pivotal role in the economic affairs of a nation. Inflation determines the extent of borrowing power among its people. If consumers have more money, they can spend, causing the economy to grow and inflation to subdue. Inflation and interest rates are closely related to each other and are frequently referenced together in economics literature. This paper sheds light on this relationship together with its effects on various economic factors associated with a market economy. The purpose of this paper is to discuss and elaborate on some of the consequences that provide uncertainties throughout the world, which are causing inflation to rise. Inflation can be effected by other economic phenomenon such as unemployment, globalization, outsourcing, migration, and terrorism. The effects of them are also revisited. Finally, the significance of association between the relationship of inflation and interest rates is statistically justified.