Soaring Profits but Too Few Jobs
Low interest rates aren't working, but we need a debate about what will.
In class, we have began discussing the effects of lowering interest rates. In class, we saw that lowering the interest rate to near zero maximizes the amount of income the economy can expect to earn based on the LM curve constraint. However, what are the effects of such a policy on the economy outside of that model? This article discusses the ramifications and increasingly diminishing returns to keeping interest rates low: distortions in borrowing costs, the low opportunity cost of holding cash, the acceleration of increasing capital substitution. I want to know what your take on this article is, and what you think about Fed policy in general.
I disagree with the idea that low interest rates have not helped the economy and produce jobs. By lowering the interest rate, you encourage more investment from the private sector. An increase in investment can encourage businesses to increase employment, because they may need more workers to handle their increase in economic activity.
ReplyDelete