Inflation and Interest Rates

B2 – Upper Intermediate

Based on a general correlation, interest rates and inflation are inversely correlated. Lower interest rates normally result in more inflation, whereas higher interest rates typically result in lower inflation.

Watch the video to understand the logic behind this relationship.

Vocabulary Questions:

1. What does the idiom “rainy day” mean? Use it in a sentence.
   “They don’t go out as much, they don’t have lots of holidays, and [sic] instead put their money away for a rainy day.”
2. What does the word “subsequent” mean?
   “Subsequent supply chain problems have arisen.” Use it in a sentence.
3. What does the word “inverse” mean? Use it in your own sentence.
   “Interest rates and inflation has an inverse relationship.”

Discussion Questions:

1. In your own words, explain the inverse relationship between inflation and interest rates.
2. What comes to your mind when you hear the words “inflation” and “interest rate”?
3. Is inflation evident in your country? Cite examples of evidence.
4. What policies has your government used to combat inflation?
5. Has the interest rate increased in your country? How do you feel about it?