U.s. Economy s Impact On The United States - 1441 Words

For my term paper, I am going to answer advanced question number 17 from chapter 6 on page 198. Within a few days after the September 11, 2001, terrorist attack on the United States, the Federal Reserve reduced short-term interest rates to stimulate the U.S. economy. How might this action have affected the foreign flow of funds into the United States and affected the value of the dollar? How could such an effect on the dollar have increased the probability that the U.S. economy would strengthen? (Madura, 2011) I will briefly describe about September 11 attacks in the following paragraph. On the morning of September 11, 2001, the Islamic terrorists group al-Qaeda hijacked four planes and crashed into the United States’ centers of power: the†¦show more content†¦economy from a recession, and it was the lowest rate level in nearly forty years. Money was available to American consumers who were drivers to two-thirds of the U.S. economy to borrow it easily and cheaply to spend in order to stimulate the U.S. economy. (CNBC, 2014) A former Fed economist, David Jones stated, â€Å"Only the Fed can create money out of thin air in these crises when everyone panics and liquidity dries up†. According to David, It was a remarkably stable financial situation compare to how big the September 11 crisis was. (Egan, 2013) The Fed loaned more than $45 billion to many financial institutions and it provided a quick stability to the U.S. economy. The Fed’s action was a key to dampen the potential financial crisis followed by the September 11 attacks on the U .S. centers of power, and economic market stability went back close prior to September 11 by the end of September. (Federalreserveeducation.org, 2014) Then how might the Fed action have affected the foreign flow of funds into the U.S. and affected the value of the dollar? The Fed has the power to reduce or rise interest rates may have an indirect effect on the dollars’ value, and September 11 effect was one of government indirect intervention that to respond to temporary disturbance. Low interest rates may reduce the amount of foreign flow of funds into the U.S., though it is still hard to predict foreign investors behavior because it is all depends on numbers of