Chapter 10 Economics

Chapter 10

Chapter 10 talks mainly about the Federal Reserve and how it plays out through our lives. They control how the money flows throughout the economy; for example, when the terrorist attacks occurred on 9/11 the Reserve itself stayed open and running while the markets closed. The Monday following the attacks the market re-opened and the Federal Reserve cut interest rates down by 0.5 percent. The Federal Reserve has tools that has more of a direct impact on the global economy than any other institution in the world, public or private. During the economic crisis that began to unfold in 2007, the Federal Reserve did everything in their power that they could to bring it back around. The Federal Reserve does not control interest rates, but they do how so control banks supply of money; so in reality they could easily drop or raise the money supply to banks which would cause them to drop or raise their interest rates. The mechanics of the Fed's handiwork should not obscure the big picture. The Federal Reserve's mandate is to facilitate a sustainable pace of economic growth. But in order to facilitate that they are pretty much playing a guessing game. It is very hard to predict what could cause a change in our economy without igniting inflation. The Federal Reserve must also think about what could impact a change in interest rates and how long it could take. The Federal Reserve does however have control over any short- term interest rates, which may or may not move in the same direction as long term interest rates. Over the long run the Federal Reserve is in fact good for the economy but bad on us consumers, it may patch up a bad economy but in that process it will bring down many people financially.