What are interest rates? How can central bank control the interest rate?

Interest rates are the cost of borrowing money.

They are the percentage of a loan that a lender charges a borrower in order to borrow money.

Central banks are able to control interest rates by buying and selling government bonds on the open market.

This affects the money supply, which in turn affects the interest rate.

For example, the US Federal Reserve can purchase US Treasury bonds, which increases the money supply and lowers interest rates.

Alternatively, the Federal Reserve can sell Treasury bonds, reducing the money supply and raising interest rates.

This is known as monetary policy, and it is used to influence economic activity.

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