Quantity Theory Of Money And Interest Rate

706 Words 3 Pages
During the recession of 2008 the Federal Reserve decide to lower interest in order to combat the high inflation and low employment growth. The recession slowly started to recover, during the summer of June 2009 it started to show improvement. After eight years of low interest rate (below zero). The Federal Reserve chairman Janet Yellen announced that the Fed would raise its targeted federal fund rate by 0.25, was post to do it June and/or September then decide to not to. Now in December 2016, the Federal Reserve is now debating again, whether or not to increase interest rate. Some support it and others don’t. Based on the Quantity Theory of money and its relationship to interest rate, the overall effect would be neutral. The increase wouldn’t significantly change the current state of our economic, therefore the end result would be neutral, creating a balance between the inflation rate and nominal interest rate. Quantity theory of money is a theory that stated that the quantity of money available determines the price level and the growth rate based on the price level is used to determine the inflation rate. Therefore, the greater demand for goods and services causes the price of good and service to increase. The …show more content…
The labor market has continued to strengthen and growth as such economic activates such employment rate as increase. Interest Rate in the United States averaged 5.83 percent from 1971 until 2016, reaching an all-time high at 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008 (Untied State Fed Fund Rate). This was the same model to combat the 2008 recession and it’s being debated on whether or not raise real interest rate and which would cause an inflation increase, an increase in the money supply and increase within the economic growth (United State Fed Fund

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