Ok so to fix the problem of inflation we lower interest rates which actually creates a bubble which drives?

interest rates up... What canidate does not do this?

Update:

unskilled take note from red this is a lesson you might want to understand

7 Answers

Relevance
  • Calvin
    Lv 7
    1 decade ago
    Favorite Answer

    Lower interest rates drives inflation it does not solve a inflation problem, but actually makes it worse.

    A lower interest rate puts more money into a economy (people borrow more)....because there is more money in the economy, prices rise. The dollar weakens (a dollar buys less and less). This helps lower unemployment....because people are spending but it creates inflation.

    A higher interest rate removes money from a economy (people borrow less and less the higher the rate). Prices must drop or remain stable because competition for less money forces changes. The dollar gets stronger ( a dollar becomes increasingly worth more and more). Unemployment may rise however due to people spending less money, and businesses cutting costs.

  • 1 decade ago

    yes, as several others have said, lowering interest rates actually fuels inflation while raising them helps lower inflation. But lower interest rates helps economic growth, so there is a very tight connection between interest rates, economic growth and inflation. Economists, the federal reserve bank and the politicians all know this is a tightrope, and the next president will also know this...(okay, john mccain has already said he didn't know much about economics, but thankfully, he won't be elected). At any rate (no pun intended), balancing everything is a constant struggle, no question. I guess the answer to your question is john mccain, the candidate that does not (know?) do this.

  • Anonymous
    1 decade ago

    The problem of inflation is very easy. Give everyone in America welfare checks in the amount of a few hundred dollars to offset the lack of a wage increase. You do about the same thing every year and you will be "ok"

    It is sustainable with an ever increasing money supply. The poor consume their whole paycheck. If someone makes 10,000 dollars and gets a 600 dollar check and they have no change in assets, isn't inflation like 6% for them?

  • Anonymous
    1 decade ago

    Your are economically confused. Too much money causes inflation. Think supply and demand,. To fight inflation we raise interest rates, and we don't hand out deficit funded tax rebates, bail out mortgage companies, or pee away $12 billion a month on a foreign welfare program.

  • How do you think about the answers? You can sign in to vote the answer.
  • pfautz
    Lv 4
    4 years ago

    it may, and it may crash economies too. that's a double side sword which could decrease the two procedures. It relies upon on what you prefer to do. in case you're attempting to maintain money from fleeing your us of a you are able to attempt offering a a procedures better top activity fee to charm to investment. If the money is fleeing as a results of fact your financial gadget is going to crash and intense costs of activity are making the crash worse, then the investor money flees your us of a even faster and you have a forex even decrease in value and inflation will advance dramatically as own loan purchasers attempt to pay your bigger costs of activity. in case you have extensive commerce deficits and extensive foreign places debt which you particularly opt for to shed then you definately opt for a devalued dollar. This costs imports intense sufficient that human beings purchase close by rather, and it ability you pays off loans with low-priced money (provided that the charge is on your forex) in case you prefer to borrow moneyry to take a place on your financial gadget bigger costs of activity and a a procedures better dollar. this could advance the commerce deficit as a results of fact foreign places products replace into extra decrease priced, besides the shown fact that it additionally must , if the investments are in manufacturing, advance your skill to compete in technologies. ------------ All particularly ordinary relatively. happy you asked an Obama supporter. Patchouli makes an stunning component concerning the advent of synthetic money by using debt. This replaced into what Bush used to gasoline the financial gadget for 6 years. It has limits and at last it must be paid, alongside with the activity that's direct inflation. whilst it may't be paid then your banks crumple and your money are straight away devalued. It additionally supply foreign places investors too plenty administration over your financial gadget. by ability of procuring into your banks with deposits, or maybe installation banks, they are able to leverage their money 900%. they are able topersistent booms and create collapses at will via ability of making an investment and retreating money. that's what got here approximately final iciness.

  • Anonymous
    1 decade ago

    None of them now

    Ron Paul was the only one who really questioned the Federal Reserve

  • Anonymous
    1 decade ago

    The president does not control interest rates so your question does not make sense.

Still have questions? Get your answers by asking now.