This is an attempt by the Fed to encourage citizens to borrow money from the banks at a very low rate. With this action, the Fed is hoping that more consumers will take advantage of these historically low rates to borrow money for new projects that could stimulate the economy. This action by the Federal Reserve was provoked in response to the recent economic crisis brought about by the mortgage and banking meltdowns the United States has experienced over the past several
Since, the FED set the interest rate in which the banks borrow from, Edgars’ ability to borrow enough money or establish a line of credit to start his business will be affected by inflation, interest rate and financial policies. However, in some situations, an unanticipated inflation can benefit Edgar, as this type of situation whenever inflation rates are underestimated for the life of a loan, the bank loses and Edgar will
Just as with borrowing by individuals or businesses, it can be good or bad. If the government borrows (runs a deficit) to deal with a severe recession (or depression), to help self-defense, or is spent on public investment (in infrastructure, education, basic research, or public health), the vast majority of economists would agree that the deficit is bearable, beneficial, and even necessary. If, on the other hand, the deficit finances waste (pork-barrel projects), or current consumption, most would recommend tax hikes, targeted transfer cuts, and/or cuts in government purchases to balance the budget. The decision about whether the deficits are good or bad can only be made democratically by an informed public. However, this is rarely the case, because the public generally does not have an adequate economic education.
(30) During the personal rule of Charles I he was able to finance his government effectively to a certain extent. Schemes such as tonnage and poundage and isolation foreign policies helped bring in huge amounts of revenue and cut costs, but were only effective during the earlier parts of personal rule. As his rule went on opposition towards his policies slowly but surely grew. The public reaction following the John Hamden case and the parliamentary grievances starkly highlight this. Thus Charles was only able to effectively finance his government during the initial years of his personal rule, however as resentment grew towards his governance it had a direct impact on his ability to run and finance his regime.
I work two jobs and maintain my financial responsibility. My big payback is the government’s bad decision indirectly affecting my income. A more fair use of the $700 billion plan would have been to let those who took out loans known to be too much and the institutions that created the loan swim or sink. Then disperse the $700 billion to consumers like me who maintain our responsibility. I could certainly use a portion of the money and would most certainly spend it frivolously.
In the case of our government, debt is managed primarily by selling bonds. The process is cyclical as the government has to sell new bonds to pay for older bonds that have matured. It is important to realize that debt should be judged in relation to assets. While debt is probably never a good thing, in the case of the U.S. economy it is not as bad as it seems. When we view some of the assets of the United States such as natural resources, skilled workforce, and tax revenue generating businesses, we see that our assets have enough value to sustain our current debt level
Lowering taxes can also leave money in citizen’s pockets but it also takes away from the amount of money the government is able to use to stimulate the economy by spending. When the government increases spending it forces the demand to go up, if taxes were lowered citizens will still have the choice to spend
If the government cut taxes or increases transfer payments such as unemployment insurance and food stamps this helps to offset the decrease in household income. Additionally, when government cuts corporate taxes, it helps prevent businesses from cutting expenses as much as they would during a recession. Therefore, an increased federal budget deficit can help stabilize an economy for as households’ disposable income rises they will spend more. Fortunately, mechanisms such as automatic stabilizers are in place to neutralize the ups and downs of the economy without having to
To increase their taxes would be appropriate and this would be stream lining taxes at a time when the economy needs a boost. The Keynesian economists would look at government spending as a means for the government to stop the little growth the economy has had and is to have. The government spending would make it so the people would not have the money to spend within the states and they would have to go without needs and desires. This in turn would be the money that could be used within the economy.
The Federal Reserve can prevent inflation by changing the interest rates on money that banks and business borrow. If it looks like the economy is likely to inflate, the Federal Reserve will raise interest rates. This reduces growth in money, making it more expensive for banks and businesses to borrow. Banks and businesses cannot expand if they can’t borrow. The less expansion, the less inflation.