What is relation between rate on interest and inflation?



1
sir tell me the relation between rate on interest and inflation plz and difference between comparative and common size financial statements.

3 Answer(s)


0

Basically when Interest rates go up inflation goes down
When Interest rates goes down Inflation goes up

The basic meaning is that when interest rates are increased the supply of money is less in the market as fewer loans are taken and people would prefer to have their money deposited in banks.

On the other hand when interest rates go down more loans are taken, people try to start business and invest, which in turn increase the supply of money in the market causing inflation.

0

Suhas is right. Interest rate is a tool used by the RBI to keep inflation at check. When inflation is too high, then the RBI raises interest rates and hence money availability reduces (due to higher interest rates, fewer people borrow money)-> when money availability reduces then purchasing power decreases and hence demand for goods reduces and hence prices reduce and hence inflation goes down.

So like Suhas said as interest rates go up inflation goes down.

Similarly RBI will reduce interest rates if inflation is too low. ith reduced interest rates more money is available in the system and hence consumer demand increases and hence price of goods will increase resulting in higher inflation.

0

Comparative financial statements provide information to assess the direction of change in the business. To know whether the business is moving in a favorable or unfavorable direction, figures of the current year are compared with those of the previous years.

Common size financial statements are those in which all items are expressed as a percentage of a base figure, useful for purposes of analyzing trends and changing relationship among financial statement items. For example, all items in each year's income statement could be presented as a percentage of net sales.

Your Answer

Click on this code-snippet-icon icon to add code snippet.

Upload Files (Maximum image file size - 1.5 MB, other file size - 10 MB, total size - not more than 50 MB)

Email
Password