Interest rates

Confused about the theory of how interest rates can affect economic growth? Senior Editor Paddy Hirsch is here with a handy analogy.

By | 2013-08-24T23:21:10+00:00 August 24th, 2013|Mortgages Home Loans Interest Rate|24 Comments

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  1. The5starSTUNNNA August 25, 2013 at 11:04 AM - Reply


  2. BlackScholes80 August 25, 2013 at 10:05 AM - Reply

    you are dead wrong… many businesses also save money if interest is high, because it’s more profitable to save money than investing…and borrowing money is to expensive…so people and businesses would delay there investments

    this scenario sounds horrible, but it’s very usefull to keep inflation low and it prevents the economy from “over heating”…the same effect has the increase of taxes…both get money out of the market…to much growth can be dangerous

  3. Peter Cohen August 25, 2013 at 9:11 AM - Reply

    Yes, and in order for interest to be paid on that money they save, it must first be ‘loaned’ so that it can be paid back, with interest. Typically such loans are to other businesses, but regardless, the money does ‘not’ leave circulation. I agree that it is good to keep inflation low (sound money would have it non-existent). But it is actual ‘policy’ to maintain a certain level of inflation that is substantially above zero.

    There is no “paradox of thrift”.

  4. Joel Garcia August 25, 2013 at 8:30 AM - Reply

    i learned more off the comments then i did the video 😛

  5. tamxhah August 25, 2013 at 7:35 AM - Reply

    Can anyone tell me why Central Banks increases or decreases interest rate? To be precise what’s its impact on other economic indicators of a country?

  6. tamxhah August 25, 2013 at 7:12 AM - Reply

    Can anyone tell me why Central Banks increases or decreases interest rate? To be precise what’s its impact on other economic indicators of a country?

  7. Pratik Gohil August 25, 2013 at 6:48 AM - Reply

    that throwing the pen thing is coooooooooooooooool!!!!!!!!

  8. houdapurple August 25, 2013 at 6:45 AM - Reply

    love the analogy ill never be confused about that again ! ill just imagine myself in your sports car haha

  9. jumpoutatree August 25, 2013 at 6:23 AM - Reply

    The way he explains it is weird… it’s not that people are deciding to keep their money in banks because banks are PAYING higher interest rates, it’s that the demand for loans decreases when banks CHARGE higher rates of interest. Higher interest rates means fewer loans which means a tighter economy. Stocks and bonds are known to typically pay much better than simple bank interest, which is always measly. Higher interest rates contract the money supply.

  10. Veronikaynadamas August 25, 2013 at 5:38 AM - Reply

    This reminds me the “Maradona Theory of Interest Rates” by Mervyn King

  11. aaronmoravek August 25, 2013 at 5:28 AM - Reply

    Marketplacevideos, you are about the dumbest person possible, if you lower interest rates no person wants to lend money out because the payout is to little. Id get a CD but the payout is too low and the private federal reserve is causing to much inflation, there for the economy does not get to use my money because im Not a RETARDED MR. ROGERS WITH A DRY ERASE BOARD

  12. Charlie12241 August 25, 2013 at 4:40 AM - Reply

    What businesses are investing for our country’s future and what are they doing?

  13. Peter Cohen August 25, 2013 at 4:22 AM - Reply

    By definition, ‘any’ investment is investing in the future. A child spending their allowance on lemons and sugar so they can open a lemonade stand is investing in the future, as they hope to make more in the future than they are spending now. (Leave aside the fact that the child is probably breaking the law and will be shut down for operating a business without proper licenses and health code permits, I kid you not.)

  14. pirucreek August 25, 2013 at 4:08 AM - Reply

    This is standard keynesian economics. The reality is high interest rates are what lead to growth in the economy. When interest rates are low you will spend your money. People don’t save for the fun of it, they do so to spend it in the future. To have a nation of spenders is to have a nation that is homeless and on food stamps.

  15. snoopdoggfanclub August 25, 2013 at 3:59 AM - Reply

    hahaha… i like this Paddy Hirsch fellow! good work! thanks!

  16. snoopdoggfanclub August 25, 2013 at 3:48 AM - Reply

    hahaha… i just want to reiterate how much i like this video series….

  17. Arham Sarfaraz August 25, 2013 at 3:13 AM - Reply

    nicely explained

  18. 220830lock August 25, 2013 at 2:45 AM - Reply

    There is a reason why interest is strictly forbidden in Islam and in all major religions.
    Imagine a society where interest rates are zero and tax rates are very low!
    Banks are circulating the money they do not have, this economic model pushed its limits and is about to blow up

  19. Kaushik Guha August 25, 2013 at 2:13 AM - Reply

    It would have been nice that with a low 1-2% inflation and a 10% savings interest,I then would not have to invest money in risky vehicles of income… 😛

  20. mortgageratestexas August 25, 2013 at 1:55 AM - Reply

    Glad you shared this. Thank you!

  21. Czeska Co August 25, 2013 at 1:11 AM - Reply

    Thank you for this!

  22. ErnieFairchild1 August 25, 2013 at 12:56 AM - Reply

    Well someone gets it!  Praise the lord

  23. InstTaxSolutionsLLC August 25, 2013 at 12:03 AM - Reply

    It would be so nice if the regulatory forces would take their foot off of the accelerator and allow the vehicle (economy) to make its own adjustments for a while.

  24. namrata yadav August 24, 2013 at 11:43 PM - Reply

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