Imagine you're trying to buy a toy that used to cost $10, but now it costs $12 because of inflation, like the prices went up. If you want to borrow money from your friend to buy it, they might ask for more interest, which is extra money you give back on top of what you borrowed. When inflation gets too high, people usually raise interest rates so everyone spends a little less and saves a little more.
Examples
- When your favorite candy costs $1 more because of inflation, your friend might ask you to pay back an extra dollar for borrowing money.
- If interest rates are high, you'll save up more before buying that new video game.
- When prices go up fast, banks usually increase the amount they charge for loans.
Ask a question
See also
- Why Do We Have Different Kinds of Taxes?
- Why Do Prices Change So Much?
- Why Do We Use Money Instead of Bartering?
- Why Do Prices Go Up So Much When There's a Shortage?
- Why Do We Have Different Kinds of Coins?
Discussion
Recent activity
Categories: Economics · inflation,interest rates,central bank,economy