For the past few years, the countrys economy has been in recession. Expansionary form _or_ system of government has been used to help pull the Nation disclose of this recessionary gap. So far, the indemnity seems to collect been proceedingive. Now that the expenditure level is rising, its time for the expansion to end. What comes next? The media seems to designate its time for the Fed to mug up touch on place. However, whatsoever use of contractionary policy must happen care widey in order for our economic recovery to be complete without deviation overboard. Thats where the federal Funds position and interest rates come into play. These are valuable tools for gradually stopping our expansion.
Background
historically low-spirited Interest Rates
For the past two years, American consumers have enjoyed the lowest interest rates in decades. This has been due in large part to actions by the Federal Reserve Board. The Federal Discount Rate has been 1 percentage for all of 2004 (Financial imagine Center, 2004). This has caused the Federal Funds Rate to remain at 1 percent during the same period (US Treasury Financial circumspection Service, n.d.). The Prime Rate has been steady at 4 percent since July 2003; its lowest in more than a decade (Money Cafe, 2004).
The Fed will very likely act to raise interest rates at the end of June, 2004. (Aversa, 2004).
Raising interest rates will be accomplished indirectly, using a cabal of raising the Feds Discount Rate and Open Market sales. This paper will address or so of the issues involved with raising interest rates.
Why So Low?
The reason rates have been so low lies in the fact that America has been in a recessionary gap. In order to pull the economy out of recession, expansionary policy is the policy of choice for most Keynesian economists. The goal of this type of policy is to cause a rightward shift in the AD curve.
In order to shift the AD curve to the right, a combination of tax cuts and increased government spending has been in effect for the past two years. This...If you want to get a full essay, order it on our website: Orderessay
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