what happens when government raises and lowers interest rates?

Question

two different question

Answer 1

They don't --- they increase and decrease the money supply, which then affects interest rates.

Answer 2

When the government lowers interest rates, more people purchase goods which they need to take out loans or mortgages on, such as cars, homes, starting small businesses, and bank loans. This stimulates the economy because more money is spent in the market economy and jobs are also created, like in construction to build the homes. It crates more disposable income. And conversley, when interest rates are raised, housing purchases and starts usually drop, thus the economy can stagnate. Of course there can be too much of a good thing: if interest rates are too low than the lending institutions do not acquire enough income to give out loans. So, a happy medium must be met.

Answer 3

The Fed refers to the exalted "bank of banks"; the central bank of the United States and the bank of the federal government, otherwise known as the Federal Reserve. The Fed was created in 1913 to organize, standardize, and stabilize the monetary system.

Before the Fed was created, almost anyone could issue currency, even a corner drugstore. It wasn't uncommon for banks to collapse, or for the economy to swing wildly between extremes.

One of the Fed's missions is to maintain stable prices (or maintain inflation at a rate that doesn't affect business or household spending), which promote economic growth and maximum employment.

The Fed uses a number of methods to achieve this goal. Its most prominent one is the raising or lowering of interest rates. By adjusting interest rates, the Fed indirectly affects demand by either stimulating or slowing the economy.

When there is an economic slowdown or recession (remember 2001?), the Fed lowers interest rates to encourage individuals and businesses to borrow money and make large purchases. This increases demand, which stimulates a sluggish economy.

When there is too much money in the economy, people spend more and the demand for products increases more than supply can match. This causes prices to rise and inflation results. During times of inflation (August 2005, for example), the Fed may raise interest rates to discourage borrowing, which slows demand.

Answer 4

IF THESE WAS A SEX QUESTION I COULD PUT THE ANSWER IN TERMS THAT YOU COULD UNDERSTAND