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6.2 Buying Now, Paying Later

6.2 Buying Now, Paying Later
  • Math Help

    According to the publication "The Federal Reserve System in Brief," the Federal Reserve System is the central bank of the United States. What is a central bank, and why do we need one? The Federal Reserve

    • manages our nation's supply of money and credit and operates at the center of the nation's financial system.
    • keeps the wheels of business rolling with currency, coin, and payments services, such as electronic funds transfer and check-clearing.
    • serves as the banker for the federal government by providing financial services for the U.S. Department of the Treasury.
    • supervises and regulates a large share of the nation's banking and financial system.
    • administers banking and finance-related consumer protection laws.
  • Consumer Suggestion

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  • Checkpoint Solution

    Sample Answer:

    Out of these three factors, inflation rate appears to have had the highest impact on the prime interest rate. Although it fluctuates during this period, the prime interest rate had its greatest overall increase starting in the 1960s and peaking in 1981. This is also the period that the CPI was increasing the most rapidly. From 1981 through 2010, the CPI has followed a linear pattern, meaning the rate of inflation was slowly decreasing. During this same period, the prime interest rate showed a large overall decline.

    There is also a noticeable correlation between political party of the president and prime interest rate. The parties look close to even for the years 1961-76 and 1993-2008, but the prime interest rate increased dramatically during the Democratic presidency from 1977-80 and then went back down during the Republican presidencies of 1981-92.

    There doesn't seem to be much relation between recent wars and the prime interest rate. But the rate did approximately increase from 4% to 8%, and then go back down during both the Vietnam and Iraq wars.

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    Ron Larson (author)1 decade ago |
    Isn't the graph on page 266 amazing! Can you imagine a time when the prime interest rate was over 20%? It was staggering.