Question

How does inflation help explain why banks charge interest on loans

Answer 1

Answer:

Explanation:

In general, banks charge interest because that's how they make their money, at least that's what banks used to do. Interest is what they manufacture for their stockholders.  Now they do all sorts of things they shouldn't.

If you mean why do they raise interest rates when there is inflation, that is really an excellent question. The hope is that they are making money more expensive to borrow. It affects the money cycle. It makes it harder for people to borrow money so they can spend it on things that they need like housing or cars.

If there is large inflation, then high interest rates protect the bands when money will buy less than before the large inflation. It's an attempt to stabilize money.