Abstract:
Written in a conversational form, this note introduces interest rates and its key determinants. Issues explained include the concept of 'equilibrium' interest rate as a result of a functioning market mechanism, demand and supply changes, and the three corresponding major theories: the Neo-classical Loan able Funds Theory, the Keynesian Liquidity Preference Theory, and the Classical Theory. The final section is a brief look at the relationship between economic policy and interest rates.