Quote:
Originally Posted by sahar sheikh
I thank you all for the answers, but as u can see ppl have contrasting opinions about this.
I have also tried to find out on the net but could not find anything.
Interest rate and inflation have inverse relation, can u ppl please explain the reason of relation between discount rate and inflation u r saying?
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for this understanding you have to first know about monetary policy and its tools as interest rate/ discount rate is major tool for increase or decrease in money supply which ultimately lead to inflation/deflation. for this you can check out the following links
http://en.wikipedia.org/wiki/Monetary_policy
http://www.economicshelp.org/macroec...est-rates.html
In the 2nd link you can clearly get the conclusion just the line above the diagram of AS & AD.
Hope it will help you and others who are in some sort of confusion.