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Essay / Research Paper Abstract
A 6 page economic analysis of how the Federal Reserve, the nation s central bank, affects interest rates in all areas of consumer activity and can either boost or hold back economic growth by means of interest rate manipulation. Though the Fed is interest rate charged to commercial banks, the discount rate, is the most visible means of economic manipulation, it is by no means the only one available. There are other avenues the Fed can choose, each with varied results but with the same overall effect that of controlling economic growth through interest rates. Bibliography lists 5 sources.
Page Count:
6 pages (~225 words per page)
File: D0_Fedres.doc
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Unformatted sample text from the term paper:
over interest rates affecting all aspects of consumer and corporate lending and borrowing. In addition to its responsibility as the central bank of the country in lending money to
commercial banks, the Fed is also responsible for thoughtfully setting interest rates for those loans to commercial banks that will either have the least possible impact on a steadily and
controllably growing economy, slow down too-fast economic growth rates or boost a sluggish economy in efforts to avoid recession. The Feds basic action is to either "loosen" or "tighten" the
countrys money supply. Though there are several definitions of the term overall and further subordinate classifications of factors comprising the money supply, it basically is the amount of money
available at any one time in the U.S. financial system. The Feds method of control is not only in the interest rate charged for loans to commercial banks, but
also in the amounts the Fed makes available to loan to them. The first step, and normally the only one taken, is to adjust the interest rate charged (Cooper
34). The influence of the Feds interest rate charged to commercial lenders is that of the stones ripple in pond. When the Fed raises its interest rate, then the
commercial bank also takes the same action with the interest rate it charges for loans made with the money received from the Fed. When a rate increase is the
result of Fed action, then everyones costs go up simultaneously and everyone charges more for the money they are placing in use. That ripple in the stones wave translates
to higher mortgage interest rates, higher personal loan interest rates and higher business loan interest rates. Using the case of a home builder as example, higher business interest rates mean
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