On the interest rate(s)

Ben Atnipp makes a good point about interest rates: we talk about them as if there is one, but there are many. It's a good thing to keep in mind. 

For the record, when talking about the interest rate that is "set" or "controlled" by the Federal Reserve, we are generally referring to the Fed funds rate, or actually the "Fed funds target rate", which is currently targeted in the range of 0.00% - 0.25%. (The Fed doesn't exactly "control" most interest rates in the economy - it only provides a sort of anchor for them - which begins to address why I asked on the previous handout "How can the central bank “set an interest rate” and still have us talk about being a free market, capitalist economy?")

In his post, Ben mentioned a bunch of other interest rates. One way to think about domestic rates in the U.S. (and many rates around the world) is basically to think of the short-term US Treasury as virtually risk-free debt. That is, loan the money to the US government and you will get your money back. (This is why the idea of breaching the debt ceiling was such a worry - because it would violate the basic principle on which so much of modern global finance is based.) The interest rate on corporate debt will be higher than the interest rate on Treasury bills, precisely because they are riskier. If you are going to loan your money to someone riskier than the US government, you will want to be compensated with a higher return in the form of higher rates. Longer-term US government bonds will generally also pay higher interest (or have higher rates) than short-term, for several reasons that have to do with the risks of inflation and the expected growth of the economy over time. Basically, if you loan the US government money for a few months, don't expect much interest (especially nowadays); if you are willing to loan for longer, you will be able to command a slightly higher return, though still rather modest nowadays. 

More on this in class, upon request.