Question

"Salty Pawz study case"

scenario

Jamie picks Wanda up from the mall. When Wanda gets into the car, Jamie has the radio tuned to Public Radio. When Wanda reaches to change the station, Jamie stops her, explaining that she is listening to a report about a meeting of the Federal Reserve earlier that day. The reporter is talking about how the Federal Reserve is considering a potential increase in interest rates. Several economists are giving their opinions regarding the announcement. When the segment ends, Jamie changes the station. After thinking about what she has heard, Wanda asks Jamie “Why do you and I care what the Federal Reserve does?”

In this discussion forum, you need to answer Wanda’s question. When putting together your response, consider the possible impact increases/decreases in interest rates and tightening/loosening of the money supply might have on Salty Pawz. Moreover, how might such decisions affect Wanda personally and as a business owner? After considering the impact of the actions of the Federal Reserve on Wanda and Salty Pawz, do you believe that the decisions of the Federal Reserve affect you? If so, in what ways might you experience this impact? If you do not believe the actions of the Federal Reserve affect you, then why not?

Answer 1

Fedral reserve controls the money supply in the market which has direct impact on interest rates.They control money by changing its supply when there is more supply of money then interest rate must fall so that influencing people to demand more money and creating equiluibrium in money market.Similarily when there is less money supply the interest rate raises to decrese money demand.So we can consider that fedral reserve works by changing interest rate by changing money supply.Here in this case they are incresing money supply then interest rate is falling so the demand in market increases.It will surely effect both jaime and wanda because as a consumer the interest they previously had got for their bonds has fallen and as a producer because of low interest rate their investment has increased beacause of low interest rate on bonds.So definitely the decision of fedrel reserve affect us.