Question

1. Describe how the Federal Reserve can use its authority to attempt to stimulate the economy.
2. One of the major problems that led to the financial crisis was the “housing bubble.” What is meant by this term?
3. Name and explain two of the reasons the congressional committee identified for the recent financial crisis.

Answer 1

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1) Describe how the Federal Reserve can use its authority to attempt to stimulate the economy.

The American government agency, Federal Reserve, regulates the financial system of America and sometimes the broader economy. As the Federal Reserve has control, it has the capability to increase and decrease the interest rates. When the Federal Reserve wants to stimulate the economy, it lowers the interest rates. This would arouse the economic activity - as it lowers the cost of borrowing money. Common people and business people would borrow more money and simultaneously spend more money. When the federal government wants to increase consumer spending and business investments, it reduces interest rates. This stimulates the overall growth of the economy.

Hope this helps :)