just to clarify: low rates increases demand for money and lower savings, but b/c for demand for money is going up, rates will EVENTUALLY go up???
Yes, eventually banks will get mad that they are lending money at such low rates and raise their borrowing rates 
Subprime!
amberpower Wrote: ------------------------------------------------------- > Yes, eventually banks will get mad that they are > lending money at such low rates and raise their > borrowing rates amber, you are the shi$!!! Thanks, bro. I took one econ class in my day and it was weak.
daj224 asks a legitimate question: He/she is saying if low rates increase demand for money, then why do you say that increased demand for money raises interest rates? amberpower’s response is true over the long term, but does not really address the apparent inconsistency. Can someone help daj224?
my common sense says: When the rates are low, people are more willing to borrow than otherwise higher rates. so low rates - > increase demand for money --> eventually rates gets pushed up. you see, as a result of low rates you end up with high rates, and when the cycle reverses you end up with low rates. lolol. I need to get some common sense check, cuz its working overtime.
Dreary Wrote: ------------------------------------------------------- > daj224 asks a legitimate question: > > He/she is saying if low rates increase demand for > money, then why do you say that increased demand > for money raises interest rates? > > amberpower’s response is true over the long term, > but does not really address the apparent > inconsistency. Can someone help daj224? I agree with amber. In the short term: Low rates increase demand for money…but Negative effect: Inflation start to rise Result in the M/L term: increase in rates
What if we just keep it at the short term. How would you explain the inconsistency?
< increase demand for money --> eventually rates gets pushed up. >> THIS WORKS
Dreary Wrote: ------------------------------------------------------- > daj224 asks a legitimate question: > > He/she is saying if low i am a male. but don’t worry, my gender won’t be on the test.
> so low rates - > increase demand for money --> eventually rates gets pushed up. >> the question is not about “eventually”. Assume short term. The question says there is a clear inconsistency in sometimes saying: 1) Low rates increase demand for money, and in some other times, one saying: 2) Increased demand for money raises interest rates. No time frame implication. C’mon, this is basic econ, I just want to hear someone say it.
What’s wrong with it? those 2 statements are the same thing for my common sense.
daj224 Wrote: ------------------------------------------------------- > < increase demand for money --> eventually rates > gets pushed up. >> > > > THIS WORKS Guys, rates will be pushed up due to market equilibrium. In the long term, market must be in equilibrium, in the short, it may not.
> so low rates - > increase demand for money --> eventually rates gets pushed up. >> Not true. You could have low rates causing an increased demand for money and staying in equilibrium for a very long time. You cannot say that rates will increase just because demand increased. In fact, we have seen this too many times where low rates did increase demand for money, but rates went down further…they didn’t go up. Look at 2000 all the way to 2003. So again, why these two statements are correct? 1) Low rates cause demand for money to increase, and 2) Increased demand causes rates to increase (bearing in mind what was said above)?
Rates move according to demand. The Fed adjusts rates to demand. Rates will eventually go up when something changes the demand, like the threat of inflation. Not sure how else to explain it.
> Guys, rates will be pushed up due to market > equilibrium. In the long term, market must be in > equilibrium, in the short, it may not. THANKS. I WISH YOU WERE MY ECON PROF, MINE SUCKED
- Low rates cause demand for money to increase b/c firms can expand cheaply b/c debt isn’t costing them much to borrow. Thus, demand for $$ (to borrow), increases. Eventually the expansion that firms create, increases demand, increases prices, increases need for high interest rates to compensate for inflation.
Dreary Wrote: ------------------------------------------------------- > > so low rates - > increase demand for money --> > eventually rates gets pushed up. >> > > Not true. You could have low rates causing an > increased demand for money and staying in > equilibrium for a very long time. You cannot say > that rates will increase just because demand > increased. > > In fact, we have seen this too many times where > low rates did increase demand for money, but rates > went down further…they didn’t go up. Look at > 2000 all the way to 2003. > > So again, why these two statements are correct? > > 1) Low rates cause demand for money to increase, > and > 2) Increased demand causes rates to increase > (bearing in mind what was said above)? Dreary, The statement: so low rates - > increase demand for money --> > eventually rates gets pushed up. >> hold “all things being equal”. Therefore, considering that the number of variables which effects interest rate and demand for money, the above mentioned “statement” does not always hold. That does not mean that it is wrong, its just depends from the variables being moved in the market.
Not always. There is a little trick in this that I’m sure amber knows very well…but haven’t seen it yet!
What do you mean Dreary?