America's economic expansion enters its 30th consecutive month, and prices for basic goods and services are rising at an acceler
ated rate. The Federal Reserve then decides to lower the interest earned on excess bank reserves, encouraging banks to lend out a greater amount of their reserves. They hope prices will then fall. Agree?
When a bank lowers the interest rate, there is a greater interest from individuals and companies in borrowing. These loans will result in money being used within the country and will increase the money supply within the financial reserve banking system in a country. This greater circulation of money promotes a greater demand for products, which increases inflation and consequently increases prices. Then the decrease in rates causes the increase in prices and not the simulation.
