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Most recently, the public has been expressing concerns about inflation. As a result the federal reserve...

Most recently, the public has been expressing concerns about inflation. As a result the federal reserve system of the United States, also known as the FED, has been pressed to increase interest rates to avoid long term inflation in the US economy. What impact will an increase in interest rates have on the economy as a whole?

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Answer #1

The Federal Reserve is responsible for making monitory policies in the US. When the interest rates are increased by the Fed Reserve it lead's to cascading effects in the economy as a whole, it lead to :-

  1. Increased cost of borrowings, which reduces investments.
  2. Higher mortagage interest payments, leading to reduced usage, fall in the house prices.
  3. Increased Returns on Savings, leading to less expenditure and high saving behaviour of the people.
  4. Currency Appreciation, due to increased demand of local currency at the international market.
  5. Higher Government Debt Intererst Payments.
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