DISCUSSION POST MUST BE 10+ SENTENCES AND THE PEER REVIEWS MUST BE 7+ SENTENCES PLEASE USE YOUR OWN WORDS AND DO NOT COPY FROM OTHER SITES STAY ON TOPIC ,BE POSITIVE , AND DO NOT COMMENT ON GRAMMAR ERRORS. TALK DIRECTLY TO CLASSMATES IN PEER REVIEWS!!! YOU MUST COMPLETE BOTH PEER REVIEWS AND DISCUSSION QUESTION!! THANK YOU
1) DISCUSSION QUESTION
“Exploring the Role of the Federal Reserve Bank”
What is the FED’s job and how does the FED manage the money supply? How do banks create money? Letâ€™s explore these questions as we talk about the role of the Federal Reserve Bank, also known as the FED.
Reply to these questions in your post:
- If the FED decides to continue the process of raising interest rates, what is the likely response of firms and households to the increased cost of borrowing?
- Thinking back to the discussion on the deficit and the debt, how might an increase in the interest rate affect a decision by the government to allow continued large deficits?
Discuss with a peer:
- Reply to a peer and discuss if their reasoning about borrowing or allowing large deficits is similar to yours.
2) PEER REVIEW #1 (MATTHEW)
When the Federal Reserve (The Fed) raises rates, it is essentially making it more expensive to borrow money. This means banks will be charged more to borrow money, and those rate hikes are passed onto consumers. It also impacts the stock market as well. Both of these combined often lead to the economy slowing down as private industry is not looking to invest as much and Americans are more hesitant to take out loans, purchase a home, or invest in business opportunities.
The decrease in consumer spending means less profits for big business, which leads to less hiring, and possibly even layoffs if consumer spending really slows down to where large companies are seeing dips in profit.
3) PEER REVIEW #2 (GREGORY)
Good Afternoon Classmates and Professor Stallo,
Because it costs more to borrow money, the financial institutions are charging customers more interest to borrow the money in an attempt to make a profit. This greatly affects individuals with credit cards and mortgages on a variable rate because it decrease what is available to be spent. When you think about it, people still have bills to pay, but with them having to pay more on high interest, the disposable income available is reduced. This also means less discretionary money for businesses.
Business are not just affected because of the reduced spending of consumers, but also because they will have to borrow money from banks in order to operate their businesses. Once he bank makes borrowing money more costly, companies are unable to borrow as much as they desire and he rate of interest is much higher. Less spending slows the growth of a company, curtails possible expansions, induces cutbacks, decreases earnings, and affects stock prices negatively.
When you examine this from the governments perspective, the interest on debt is added to the deficit each year. The concern for creditors is the government will at some point repay all the debt, so higher interests rate will allow the creditor to receive a higher return, and raising the rates dampens the growth of the economy, and debt hurts the economy. Therefore, the government is going to do all it can to eliminate what hurts the economy because the goal is to be prosperous and to increase the value of the dollar and reduce unemployment.