Interpreting interest rate movements

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Reference no: EM131172399

Interpreting Interest Rate Movements

Evaluate the accuracy of the following statement.

"The observation of rising interest rates should always be interpreted as an indicator of economic decline while falling interest rates should always be interpreted as a an indicator of economic expansion."

In preparing your comments bear in mind that it is not enough to simply state your conclusions or opinions. I expect you to use economic principles and theory (in this case the bond market or loanable funds approach to interest rate determination) to provide logical support for your position. Vigorous assertion of your position will not be enough.

Hint: The laws of cause and effect apply to interest rates. (i.e. movements in interest rates reflect some kind of change in the economic environment) As such, the desirability of a given movement in interest rates is unlikely to be independent of the change in the economic environment that causes it.

Reference no: EM131172399

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