Why Does Investment Spending Depend On Interest Rates

Money is the life force of all of society. In every aspect, money determines the value of good, services, and even people’s lives. As we breathe air to function, society relies on finances to function. And if society, the unity of humanity, relies on money, than the leaders of society want to limit and control it to withhold their power over humanity. They do this by limiting what can be bought and sold, while also controlling how much different things cost. These limitations allow our leaders to control our money and, through that, our value and influence to society.

You have used money to measure the price, the size of business, total output in the economy, and income. Coins and paper money are called currency. People use currency daily. When you go to a movie, you probably buy a ticket with currency. Coins and paper money work well for small purchases and when payment is made directly from one person to another. But, for large purchases or when payments travels to mail, currency is not practical. A check is a written order to pay money from amounts deposited. Therefore, deposits in checking accounts, credit union share draft accounts, and other similar accounts are considered money. Remember that the most important function of money is as a

Money allows many people to take care of themselves. If someone needed to eat to live how would they get the food. They would need to buy it right? How would the buy it? With money of course. Food is a necessity of life and, how would you survive without it. You would die, then how will you achieve anything in life? Also, money buys you clothes, and put a roof over your head. Money “holds heads above water”(Gioia 82). Money does things

Financial intermediaries are financial institutions such as bank, insurance company, credit union, stock exchange, and so on who works as a middleman

1. A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary.

Interest rate is the percentage of the loan that is charged as interest. The interest rate is determined by 3 factors. The first is the rate that the Federal Reserve bank charges the banks. The second aspect that determine the interest rates is the demand and supply of bonds and treasury notes. Finally, the third aspect of the interest rate is determined by the bank. The bank sets the rate according to their needs.

Interest rates have a vital part in the American economic systems, whether the Feds decides to increase or decrease the interest rates the banks pass that onto the consumers and the economy. There have been many arguments why interest rates need to be increased; lower interest rates have caused Americans to have lower incomes and not be motivated to save because of the low rates (Bartlett, 2012).

“Money is a means of payment, store value, and a unit of account” (Case, Fair, & Oster 2011). Money is our economy’s barter. Instead of providing goods and services to get other good and services, money is that form of exchange. For example, you can easily go to the store with money and buy a gallon of milk. Money is a store of value; for instance gold and silver. Money gives purchasing power from one period to another, in other words it can be (look for “USED”)r ver time. As mention in the class lectures, we rely on checking and saving accounts for this. Money is a unit of account; it provides a common base for prices. We can add up goods to their dollar and cent value.

The overall development of an economy is a major factor that has significant impacts on the development of the economy's financial markets. Since well-functioning financial systems offer good and easily accessible information, they lower the costs of transaction. This in turn enhances resource allocation and strengthens economic growth. The financial services industry consists of various systems such as stock markets and banking systems that enhance growth and help in poverty reduction. However, commercial banks tend to dominate the financial system during low levels of economic development while stock markets become more active and effective during periods of high levels of economic development ("Financial Sector", n.d.). The other important systems in the financial services industry include sound macroeconomic policies, shareholder protection, and good legal systems.

Money is considered to be a medium of exchange, a unit of account, and a store of value. Medium of exchange means that money is the intermediary instrument that facilitates the exchange of goods. It is also considered to be a unit of account which means it is something that can be used for value for goods and services, record debts, and make calculations. A unit of account, is divisible, fungible, and countable. Lastly money is classified as a store of value meaning it can be stored away through savings and keep its value for later use. The creation of money occurred because of the complexity of exchange in ancient times. Goods and services were exchanged; however, they were unbalanced. Some valued items or services as higher than others. This flaw in the barter exchange led to the invention of an economic system with money as the focus so there was a set value.

The famous song and saying “money makes the world go around” is not far from the truth. “Holding money as a medium of exchange to make payments” is refered to as the transaction demand for money (Miller p. 347). People demand money for two primary reasons. First, they use it as currency, cash and coins, to make purchases with it. Second, they hold it as an asset over time in hopes that it will increase in value. However, storing 100 dollars in U.S. currency under ones mattress will still be worth 100 dollars of face value but it historically will buy less as it will slowly lose its buying power over time due to infation. Precious metals, such as gold and silver, are also forms of money. Gold in

Finical markets are needed to transfer funds from someone who has surplus funds to those who needs money which has our economy expand and grow. The worlds focus has remained on the financial position of the economy since the 2007 finical crash, many people and business are still very cautious despite the improvements within consumer credit as banks are lending more people money for mortgages but also businesses are starting to receive loans to set up business as well. It is clear to see from the Bank of England Credit report that there have been improvements for household and businesses but the economy has to improve a lot more to reach the pre-recession level. However it could be argued that with the improvement, many problems will arise. For example when people become more confident moral hazard and information asymmetry will cause problems in all sectors of the economy.

Development of an individual economy passes through different economic phases. Sometimes it is booming and sometimes it suffers from recession. This phenomenon can be viewed as projection of consumption and investment strategies of the individuals and the government of the country. Interest rate, being a major factor of economics, plays a great role in economic activities carried out by nation and the nationalities. A change in interest rates may affect other factors of the economy. For instance, investment strategies of the investors, consumption strategies of the individuals, foreign exchange, imports, exports etc. are affected by the interest rates. An increase in interest rates may decrease the investment, decrease the

A” financial system consists of the institutions that help to match one person's saving with another person's investment”. (Mankiw, 2014, p. 260) It is important to have a financial system because it keeps institutions on track by allowing them to follow a specific order to allow them to coordinate those who borrow and save. Hence, it is important to save because saving and investing allow a longer growth in the economy. For

Financial intermediaries provide a number of functions. The first of which is known as size transformation. A financial intermediary is able to borrow to an economic agent with a deficit of funds the amount they require without the need to find a lender that is willing to invest the exact amount required by the borrower. Without financial intermediaries, it would be extremely difficult for a borrower to raise capital as lenders would have to pool their funds together in order to lend the borrower the amount they require. Another function of financial intermediaries is maturity transformation. Economic agents with surplus funds usually prefer investing their money in short-term projects, whereas borrowers require more long-term financing. Financial intermediaries offer an optimal solution, without which borrowers and lenders would be in disagreement over the terms of the transfer of funds. Financial intermediaries also provide risk transformation. Economic agents with surplus funds are usually very risk conscious when it comes to investment, but borrowers however may require the finance for a more risky project, that may be more profitable. Financial intermediaries are willing to take risks that borrowers usually would not. However, there is usually a compensation agreement so as to avoid