ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Raising rates can lead major businesses, particularly those that hold high amounts of corporate debt, to lay off workers or slow hiring. As a result, the unemployment rate increases, further slowing the circulation of money as consumer demand drops.

Detailed explanation-2: -Conversely, the Fed may choose to increase the federal funds rate if it predicts that the economy is heating up too much and causing prices to rise too rapidly (inflation).

Detailed explanation-3: -It’s referred to as “expansionary monetary policy” when the Fed lowers the rate range. Banks offer lower interest rates on everything from credit card rates to student and car loans. Adjustable-rate home loans become cheaper, which improves the housing market. Homeowners feel richer and spend more.

Detailed explanation-4: -Lowering the fed funds rate has the opposite effect. It reduces short-term interest rates throughout the economy, increasing the supply of money and making it cheaper to get credit. This may cause moments of low or negative inflation to turn around and may drive hiring as companies are able to grow more cheaply.