How does buying bonds and cutting interest rates effect unemployment?

Question

How does buying bonds and cutting interest rates effect unemployment?

Answer 1

Well when people buy government debt, increased faith is given to the nation and it's ability to "back up that debt".  

The more people who have "faith" in this way,  paves the way for more investing from foreigners as well as domestic investment.  People like seeing a stable financial system.. Who would buy government bonds in Central African Republic??

Cutting interest rates acts in the following way, as it is a double-edged sword;

1) fed cuts rates

2) in theory this stimulates growth and investment

3) money becomes cheaper to borrow, and companies can grow

4) the dollar loses it's steam

5) less people want dollars

6) dollar is further pushed down due to being sold as others look for "higher yielding" currencies

7) since dollar is weak, it becomes cheaper for foreigners to buy american made goods.

8) increased production here due to foreigners buying more of our goods/services, means more hiring, and therefore more investing..

I forgot to mention... weaker dollar means higher commodity prices – primarily – you guessed it, OIL.

Since oil is in everything, it now costs more to produce and then of course to purchase at all levels from primary to secondary right down to the consumer..  When everything costs more, you have inflation on your hands.  When inflation rears it head, the fed (in theory) should raise interest rates to curb it.

Answer 2

One of the tools the Federal Reserve has to steer the economy is manipulating the amount of debt in the country. This government agency buys and sells the nation's federal debt.

Consider this, if they are buying up debt, then two things are happening. One, fewer dollars are stuck in federal funds, more are then in the general economy doing what money does in an economy. On the otherhand, if they are reducing debt holdings, selling it off, then they are soaking up money and diminishing the funds in the normally productive purposes they would otherwise go for. (Currently, however, that horde of cash is being bid out to banks, which have borrowed a surprising lot of cash, so we are back to the other place, money in the economy, just in slightly different hands).

When money is in the economy, as in productively in the economy as opposed to bailouts because of burst bubbles, then business is using it, and hiring. If the money is in hiding, as in long-term federal debt, then it isn't buying stuff, or hiring more staff for the businesses delivering things.

Obviously, there are piles of other considerations, but these are the mechanics of the basic influences, an important word.

Answer 3

the prime interst rate arrived at 2 per cent, so moodys rated all bonds of any kind as unsafe and uninsurable, thereby making investors feel like selling all stocks, which drains all corp. capitol so corporations need to tighten their belts and lay off people