Purchase Solution

Fed and reduction in interest rates

Not what you're looking for?

Ask Custom Question

Since January of 2001 the Fed has reduced its Fed funds rate target from 6.5% to 1%. Nonetheless, the number of people at work is less than (and the unemployment rate higher than) when the Fed embarked on this expansionary monetary policy. Why hasn't the Fed's policy been more effective over the last 2.5 years in restoring strong growth and full employment to the economy? Explain in a few sentences.

Purchase this Solution
Solution Summary

This solution discusses Fed and reduction in interest rates.

Solution Preview

The tools of interest rate adjustment and bank capital requirements that the Fed has are actually rather limited in effectiveness. There are many factors at work that are beyond the Fed's control. For example, growth depends on optimism from the decision ...

Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • Effect on short-term interest rates of Fed selling bonds

    A reduction in consumption and investment will reduce the aggregate demand in the economy and slow down the rate of growth of the economy. The solution examines the effect on short-term interest rates if Fed sells government bonds.

  • Money Policy: Market Interest Rates

    which stimulates the economy and leads to reduction in market interest rates.

  • Fed changes discount rates

    By lowering the discount rate , there would be trickle down effect and the there can be reduction in the interest rate, and reverse is also true. This means that increase in discount rate can lead to increase in interest rate.

  • Tools introduced by the FED in the past two years

    Term Security Lending started in March 2008 and ended in February 2010. 4. Reduction of Interest rates to below 2%: In order to energies the US economy the FED reduces interest rates twice in two years in order to encourage investments.

  • Stock Market Evaluation

    It was because of the proposal of the Fed to tighten the bank policies or rules of trading for big banks. It also caused a decrease in the interest rates because of the reduction in companies' confidence for the interest rates.

  • The money supply and how it fights inflation

    Net Exports: A more technical explanation for the reduction in net exports is that a reduction in money supply reduces bond prices (because more are being sold and the increase in supply reduces prices) and causes an increase in interest rates (less money

  • Aggregate Demand/Aggregate Supply Model - Money supply

    Net Exports: A more technical explanation for the reduction in net exports is that a reduction in money supply reduces bond prices (because more are being sold and the increase in supply reduces prices) and causes an increase in interest rates (less money

  • tools of the Federal Reserve

    When the Fed wants to lower interest rates and increase money supply it buys treasury bills in the open market and thus induces more cash in the market.

  • Discount Rate in the Banking System

    When the Fed wants to stimulate the economy, that is it want to raise aggregate demand it lowers the discount rate thus leading to a reduction in the federal funds rate, the prime lending rate, and all other interest rates.

View More Related Solutions