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if interest rates are high, consumers stop purchasing little or no products, and that makes the real GDP start to fall, which is a contraction

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Q: How can interest rates push a buisness cycle into a contraction?
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Continue Learning about American Government

Since 1913 the United States banking system interest rates and the amount of money in calculation have largely been controlled by?

The interest rates and the amount of money have been controlled by the economy rates since 1913.


Who sets national interest rates in the US?

The Federal Reserve (The Fed)


Who creates the caps on government borrowing?

In the USA it is Congress. They have to pass legislation to authorize the government to borrow more money (raise the debt ceiling). Indirectly the Federal Reserve and the market also put a cap on it since the ability to borrow depends on the interest rate that must be paid on any bonds issued by the government. Higher interest rates set by the Fed cause the interest rates that must be paid on government bonds to have to be higher to actually sell. The market also determines what interest rate will be required to sell all the bonds - the less demand there is for the bonds, the higher the interest rate has to be in order to make them attractive enough to sell and the better the yields on other potential investments, the higher the interest rates have to be in order to be sufficiently competitive. The higher the interest rates, the more difficult it is to get approval to borrow.


Federal government affect interest rates?

The federal government affects interest rates more than any other factor. They set the Fed Funds rate and the Prime rate. Fannie Mae, Freddie Mac, FHA. VA, and USDA loans are all backed or guaranteed by the federal government. Most of these loans are securitized into mortgage-backed bonds. Thus the coupon rates and performance of these bonds directly affect rates.


If a government wanted to expand its capital resources it could?

lower interest rates to make borrowing money easier.