The implications about the government’s views of the health of the interest rate channel during the implementation of a “cash for clunkers” program and a “cash for appliances” program
Introduction:
Interest-rate channel shows the effect of a fall in interest rate on spending and aggregate demand curve. It has main emphasis on the real interest rate rather than the nominal interest rate. In addition, it is often the real long-term interest rate and not the real short-term interest rate.
Explanation of Solution
The necessity of the implementation of “cash for clunkers” and later a “cash for appliances” rebate program indicates that the health of the interest rate channel was poor at the time of the Global financial crisis in 2009.
Despite low interest rates, as a result of expansionary or easing of
As a result, the government had implemented such rebate programs in order to increase spending in these areas.
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