Money, Interest Rate, and Inflation

MONEY

• Anything of value that serves as a generally accepted medium of financial exchange, legal tender for repayment of debt, standard of value,  unit of accounting measure, and  means to save or store purchasing power. See also cash.

INTEREST RATE

• The annualized cost of credit or debt-capital computed as the percentage ratio of interest to the principal.
  Each bank can determine its own interest rate on loans but, in practice, local rates are about the same from bank to bank. In general, interest rates rise in times of inflation, greater demand for credit, tight money supply, or due to higher reserve requirements for banks. A rise in interest rates for any reason tends to dampen business activity (because credit becomes more expensive) and the stock market (because investors can get better returns from bank deposits or newly issued bonds than from buying shares).

INFLATION

• the rising price of goods and services over time. It's an economics term that means you have to spend more to fill your gas tank, buy a gallon of milk or get a haircut. Inflation increases your cost of living.