The Rate of Interest---Need Some Clarification Please

Economics Economics Questions
1

I’m currently reading Man Economy and State and would like some clarification / verification on how the rate of interest is determined.

What I’m understanding is that when the time preferences of individuals decreases, this means that individuals are preferring future goods over present goods. Because of this, these individuals save their money, allowing the banks to charge less of a price for their service? Would it be correct to say this? I’m understanding that an interest rate is a price for a service of providing future goods now, and thus is liable to the law of supply and demand?

So when the FED embarks on credit expansion, it is basically supplying banks with more money, thereby increasing its supply and allowing it to charge a lower price (lower interest rate)?

Any help would be greatly appreciated.

2

Yeah, you got it basically right. The interest rate is basically the price on loanable funds. When people save more, they put more of their money into the banking system, which expands the supply of loanable funds. When credit is created out of thin air by central banks or fractional reserve banking, then presumably the same happens.