|HubPages Device ID||This is used to identify particular browsers or devices when the access the service, and is used for security reasons.|
|Login||This is necessary to sign in to the HubPages Service.|
|HubPages Traffic Pixel||This is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.|
|Remarketing Pixels||We may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.|
|Conversion Tracking Pixels||We may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.|
Which is better for an economy with slow growth, to increase or decrease the interest rate?
Increasing the interest rate as a monetary policy will affect for example two important sector - automobile and housing. Some economists argue that lowering the interest rate will help the people cope with their debts. Increasing interest rate is the opposite of just that. What is your opinion?
Increasing the interest rate will affect all sectors where people need to borrow money not just the automobile and housing sector. If money is more expensive to borrow then business will borrow less. This means that business will have less opportunities to expand. This translates to slower job growth and possibly even a loss of jobs. Increasing the interest rate will help to limit inflation, but it comes at a cost.
Lowering the interest tends to have an expansionary effect, but it also can lead to inflation since you are paying less money to borrow money. This happens in two ways. As people borrow more money the amount of money in the economy increases. As the supply of money increases the value of money declines. Another effect of lower interest is a reduction in the efficiency of investments. When you invest borrowed money your return on investment just needs to cover the interest on the loan and the capital in order to turn a profit. The lower the interest rate the less you have to cover and the less productive you have to be. A decline in productivity relative to the supply of money can lead to inflation.
To answer your original question, If it is better to increase the interest rate or decrease the interest rate? It depends on if you have a lot of money. The more money you have the more inflation affects you negatively. The less money you have the less inflation affects you. The people who borrow money actually benefit from inflation.
Take hyperinflation for example, I borrow $10 from you and I buy two beers at the bar. One hour later the price of beer increase by 25% and it is now $12.50 for two beers. If I pay you back the $10 that I borrowed you will no longer be able to buy two beers. I have now paid you back money that is worth less than it was when I borrowed it an hour ago. This is the reason why interest rates also tend to be tied to inflation. The more people expect inflation to be the more they will charge for interest. Keeping inflation down tends to benefit the rich because they hold onto more money and they tend to lend more money. Allowing inflation to happen tends to reduce the value of money and helps poor people, especially if they are in debt.
The role of the Federal Reserve Bank is to find a balance, but they tend to err on the side of keeping inflation down which tends to help rich people more than poor people. Overly focusing on keeping inflation down slows job growth and that hurts poor people too.
by rhamson3 years ago
Two trains of thought are being bantered back and forth. Does a raising of the minimum wage create job loss and lower profits and more unemployment or does it increase disposable income thereby jump starting the economy...
by Doug Hughes7 years ago
In 20 years, the history books will call this the 2nd depression. We are in a liquidity trap, according to Paul Krugman, nobel-prize economist. That’s central to the problem. “The term liquidity trap is used in...
by Deforest3 years ago
In Costa Gavras's EXCELLENT movie "Capital", it is said : "Banks bleed people 3 times. First: the market wants blood, you relocate, workers lose their jobs. Second: you bleed them as customers. Third: via...
by lady_love1587 years ago
http://www.huffingtonpost.com/dan-dorfm … 67131.htmlThe action by the Fed to counterfeit a trillion new dollars will make the rich richer and the poor, poorer. Inflation will spark, your savings already earning...
by Barefootfae5 years ago
http://www.cnbc.com/id/100584821The Senate has produced and passed a budget. Of course it's mostly all tax increase and does nothing.....repeat nothing....about the deficit ten years down the road.But there it is. I...
by Nickny799 years ago
HIGH tax rates reduce economic growth, because they make it LESS profitable to work, save, and invest. This translates into less work, saving, investment, and capital--and ultimately fewer goods and services. Reducing...
Copyright © 2018 HubPages Inc. and respective owners.
Other product and company names shown may be trademarks of their respective owners.
HubPages® is a registered Service Mark of HubPages, Inc.
HubPages and Hubbers (authors) may earn revenue on this page based on affiliate relationships and advertisements with partners including Amazon, Google, and others.