This module is the second in the block economy and business,  and explains how interest rate is changed to control the economy. I explain how does it work  in the United States, and also in how the same thing is done in The European Union.

Building of the Federal Reserve Bank of New York,were the US interest rate is 'manipulated'.

The Interest rate is the  price of money  and is a powerful tool to change the liquidity in a economy. In other words, depending on the rate, there will be a lot of investment or nothing. Because of the financial crisis, the fed funds rate was set to 0% since December 2008 to boost the economy. This means that there isn’t more ammunition with the interest rates, and many economists predicted a disaster because this stimulus wouldn’t be enough.

Fortunately for us, what these economists did not think about, is the effect of the fiscal policy. When taxes decreased in the US, caused the same effect as a cut the interestrate,  and gave a very desired and needed stimulus to the economy. The problem with the fiscal policy is that the government loses a lot of money if wants to stimulate the economy lowering taxes. And in the other hand, raising taxes is a very unpopular measure.

Check the module  Out

Related posts:

1. The Federal Reserve Increased the Discount Interest Rate
2. The European Interest rate is likely to continue low in 2010
3. The Federal Reserve is optimistic about the economy but will keep interest rates steady