Compare and contrast your thoughts about monetary policies. Research current levels of the federal funds rate, inflation, and unemployment and make recommendations on monetary policy actions that would help maintain economic stability peer #1 name is Adrianna How do changes to the federal funds rate affect the unemployment rate? I believe this would be a good example in the book one of the questions is does the federal funds matter only for bank and the book states “Not at all. Only banks borrow directly in the federal funds market, but the economic impact of this market is much broader. Because different parts of the financial system are highly interconnected, interest rates on different kinds of loans are strongly correlated with one another. So when the federal funds rate rises or falls, other interest rates often move in the same direction. (Mankiw, 2021)”. And if federal funds rises and makes interest rates rise this could potentially cause a spike in the unemployment rate, since a rise in interest rate lower consumer spending and business investments this could lead in a reduction of hiring thus leading to low employment rate. How do changes to the federal funds rate affect the inflation rate? Explain the relationship using information from the textbook. The federal funds rate can affect inflation rates by committing itself to the open market and affecting the money supply the book states “When the Fed announces a change in the federal funds rate, it is committing itself to the open-market operations necessary to make that change happen, and these open-market operations will alter the supply of money (Mankiw,2021)”. This means its possible that federal funds can affect inflation rate as “ higher money supply leads to higher inflation, pushing down federal funds (segal,2023).” peer #2 name brianah The Federal Reserve’s adjustments to the federal funds rate have a dual impact on the economy, influencing both the unemployment and inflation rates. When the federal funds rate is increased, borrowing becomes more expensive for banks, leading to tightened lending standards and reduced spending. This can contribute to potential job losses, as businesses may scale back to counter the higher borrowing costs. A decrease in the federal funds rate makes borrowing more affordable, encouraging businesses to invest, expand operations, and potentially reduce unemployment as they hire more workers. This can be most noticeable for us in the few years since the start of Covid to today. Furthermore, changes in the federal funds rate also impact the inflation rate. The cost of borrowing for businesses and consumers is influenced by the adjustments made to the federal funds rate. A lower rate stimulates increased investment and encourages consumer spending, leading to more for goods and services. This increased demand can result in inflationary pressures. The Federal Reserve uses interest rate adjustments to navigate this delicate balance. please provide a detailed response for each peer. if you have any question please ask.
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