00:01
So here we've got a discussion about interest rates, and i'm going to go through each of these factor by factor to try and explain which of them will increase interest rates, right? the first one is fed stimulus.
00:12
Now, in the modern world, there's a lot of ways that the fed can stimulate, but all of them create money or credit, basically speaking, right? the fed is injecting money into the economy with more money or credit that lowers, the rates, right? interest rates are the cost of accessing money.
00:36
If there is more money, more credit, credit and money is cheaper, right? b, expected inflation declines.
00:44
Well, remember the fisher identity.
00:46
The fisher identity tells us that the nominal rate is equal to the real rate plus expected inflation.
00:52
If expected inflation is going down, nominal rates should be falling as well, right? inflation is a cost of loaning money, right? if you loan someone money, you'll get back less due to inflation.
01:06
When the cost of loaning money is going down, less inflation, people make loans at lower prices, right? c, increased savings, right? so here we have more supply of savings, right? which means, cheaper loans.
01:31
This is the correct one, right? this is the correct answer.
01:36
When households save more, they push more money into banks, right? they are saving more resources, putting those resources into banks, and that gives banks more deposits to make loans with.
01:47
With more money available to make loans, the interest rates will tend to fall, right? d increased investment.
01:59
This is the opposite of c.
02:02
This stresses the supply of savings, right? when all the businesses need money, because they want to expand, they all go to the bank, they all need loans, and everyone needing actual loans tends to drive the price of loans and credit up.
02:20
So this is actually going to push rates...