Question

Explain why interest rates in the United States have been so low.

Explain why interest rates in the United States have been so low.

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Answer #1

The Fed is supposed to maintain low unemployment, stable price level, and a stable economic growth. For years, the Fed has maintained a low-interest rate in order to increase aggregate spending, borrowing, and investment. Low interest helps people borrow more and spend. Also, it helps businesses borrow more, invest and expand economic activities. When people spend more the aggregate demand shifts towards the right. Firms can also invest more to expand production and fulfill the higher level of aggregate demand. So, expansion in aggregate demand-supply expands real output. When the real output is higher, firms hire more workers and unemployment goes down. So, the low interest helps in achieving a stable price, stable growth, and low unemployment.

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