The Federal Reserve Bank makes a decision to increase interest rates regardless of the fact that real wages do not rise. Even though this idea seems to prevent people from earning more and has negative personal effects, its influence on the country’s economy is advantageous. Increased interest rates will reduce customer spending and encourage the population to save their funds. In such a manner, the fact that the wages do not increase does not seem to be a problem.
specifically for you
for only $16.05 $11/page
In fact, the proposed initiative allows overcoming this issue since bank loans will be easier to obtain. High borrowing costs may reduce clients’ confidence, but they will also minimize ugly spending that increases both demand and supply. In such a manner, organizations will have an opportunity to develop a stable position because they will focus only on the provision of the most important items and increase its cost. As a result, aggregate demand and supply will reduce, economic growth will be slowed down, and a considerable number of people may lose the job (Greenlaw and Washington).
It is important to remember that increased interest rates can reduce import costs. Therefore, inflation will be lowered, and the national currency will become stronger. From a long-term perspective, it means that purchasing power will enhance and the representatives of the general public will not lose all their savings. Thus, The Federal Reserve Bank is willing to increase interest rates to reduce demand and economic growth. As a result, inflation that can have a dramatic influence on the country’s economy and the well-being of its population will be postponed. This intervention is a good solution for inflation, but it is significant to develop additional changes to prevent the great increase in the poverty rate.
Greenlaw, Steven, and Mary Washington. Principles of Macroeconomics. CreateSpace Independent Publishing Platform, 2017. OpenStax, Web.