For this discussion board, I want you to do some research into the “Financial Crisis.” Why did it occur? Can you characterize the behavior of the financial sector that led to the financial crisis? What effects occur as the interest rates rise? Discuss the effects that will occur with this rate increase. Do you feel like the increase was the appropriate decision? If so, why? What are the methods the Fed could use to achieve this rate increase?
Functions of the Federal Reserve System
The Federal Reserve System looks after the financial activities and operations of the banking system. It is the apex body that has complete control over the banking regulations. All the guidelines regarding the banking system, money supply, and formulation of the monetary policy come under the purview of the Federal Reserve System. The New York Fed also helps in drafting the monetary policy and supervising the financial system.
Elastic and Inelastic Markets
Measuring the change in percentage of an economic variable with respect to change in a different economic variable is known as elasticity. This change in percentage results in a change in price concerning changes in other factors. In simple terms, when one factor brings a change to another factor, it is called elasticity.
For the first time since 2006, the Federal Reserve voted to raise interest rates by a one-quarter percentage point in December 2015. Prior to this increase, interest rates had remained between the 0.00% - 0.25% range, an area called “the zero lower bound.”
The Federal Reserve had driven interest rates down that low as a means of helping the economy get back on its feet after the Financial Crisis. The reasoning was that consumers and businesses needed access to loans so that production could turn around. (Consumers take out loans to buy high price items like cars and homes. Businesses use loans as a means of expanding their business. In both instance, more goods will be produced.)
The increase in 2015 moved rates to the 0.25% - 0.50% range. As of October 2018, interest rates have moved to 1.00% - 1.25% range.
For this discussion board, I want you to do some research into the “Financial Crisis.”
Why did it occur? Can you characterize the behavior of the financial sector that led to the financial crisis?
What effects occur as the interest rates rise?
Discuss the effects that will occur with this rate increase.
Do you feel like the increase was the appropriate decision? If so, why?
What are the methods the Fed could use to achieve this rate increase?
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