Economic Analysis of Social Issues 1st Edition by Alan Grant

Exercise 27

[Related to Application 18.2 on page 393] The Fed began raising interest rates between 2004 and May 2006. This resulted in mortgage defaults, and in July 2007, the first major bank failed. The Fed began lowering interest rates shortly thereafter, and by November 2008, the rate was back down to 1%. Why do you suppose reversing the course of interest rates didn't solve the growing economic problems?