Suppose the FED announces it will lower the "interest rate" several times over the next year or so (a little bit at a time).

Using our macro model explain:

1. What justification would cause the FED to engage in this policy? (Not specific to current events, but in general)

2. What are the mechanics to implement this policy?

3. What "macro" effect is this likely to have in the short run?

Explain your answer in terms of the FED's actions and how it changes our model.

Answer rating: 100% (QA)

Justification for Lowering Interest Rates The Federal Reserve FED may lower interest rates for several reasons a Stimulating Economic Growth Lowering interest rates can encourage borrowing and investm... View the full answer