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Their Interest is Waning

December 18, 2009

The Federal Reserve is continuing to keep interest rates at a very low 0.25% in hopes that investment will increase with this attractive rate (basically, it’s tantamount to borrowing money without paying any interest). Neoclassical economists argue that an increase in investment will increase employment as firms spending money on new capital will hire workers.

The latest BLS employment report shows that while the national unemployment rate was lower in November (10%) than October (10.2%), it’s still higher than November last year (7.8%). All good Keynesians know that monetary policy is not the only option available to increasing employment. The government can implement fiscal policy to create jobs.

Even though U.S. sales figures have risen recently, it’s important to regain consumer confidence by targeting a lower unemployment rate. In theory, confident workers are workers who will spend more of their disposable income; even if it’s on iPhones that are on a network that is incredibly slow and unreliable.

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