Essay Example on Central Bank Benefits: Inflation, Growth, and Interest Rates

Response to Classmate 1

The post is well informed as it highlights some of the essential benefits of the central bank. One of the benefits that a reader is likely to find interesting from the post is the fact that the fed can control inflation. Inflation results when the flow of money within a country is low due to high interest rates hence reducing spending rates. Another critical aspect from the reading is that at the time when inflation within a country is high, the economy grows at a lower rate and vice versa. From this, it is clear that inflation has adverse effects on an economy. Also worth mentioning is the federal funds rate, which is not well defined in the post. The federal funds rate is the short-term interest where banks borrow money from each other (Saunders & Cornett, 2019). The fed is in charge of regulating the federal funds rate. Thus, this implies that the fed can control interest rates for investors, businesses, and consumers. With this in mind, the fed can control the economy of a country hence making this one of the critical elements of the Central Bank. More so, the discussion shows that how people spend and manage their money could affect inflation and, in turn, influence economic growth. The post is a good read, but one question arises. The question is, "To what extent should the fed lower or increase the federal funds rate, for it to be considered safe for the economy?"

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Response to Classmate 2

The post discusses the Federal Reserve System, its role, and its importance in the United States. From the read, it is clear that the fed has a significant role to play in determining the economic situation of the United States. One point worth noting is the decline of the lower federal funds rate during and after the economic recession of the year 2008 (Saunders & Cornett, 2019). The fed raised the federal funds rate once it was sure that it was safe to do so. Primarily, this signifies that the fed analyzes the economic situation of a country before making any financial decisions that could affect the spending rates, inflations, and, eventually, the growth of the economy. Some of the facts provided by the fed before increasing or lowering the interest rates are the rate of employment. When employment rates are high, the spending rate is likely to increase hence economic growth and vice versa. Low-interest rates are of profound use when the employment levels are low since the level of borrowing to find means of sustenance is likely to increase. Without regulations by the fed, banks would be greedy and raise interest rates for selfish gains, which would hurt the economy. From the post, it is clear that the fed plays an essential role in regulating and controlling the economy. The read is a good one, well detailed, and informative.

References

Saunders, A., & Cornett, M. M. (2019). Financial Markets and Institutions (7th ed.). New York, NY, McGraw-Hill Education