The Federal Reserve raised its key interest rate on Wednesday from a range of 0% to 0.25% to a range of 0.25% to 0.5%.
The rate hike is a small one, but it will affect millions of Americans, including investors, home buyers and savers. Savers should eventually see a little more interest on their deposits at the bank, but big banks didn’t make any increases Wednesday. Mortgage rates will gradually rise.
After reading this article we can see that government is actually playing a very important role in economy. They can adjust the recessionary gap or inflationary gap but changing the interest rate. If the interest rate is low, people would prefer to save more and post less and that will lead to a decrease of aggregate demand, real GDP will decrease along with it as well. In this way, the recessionary gap will closed. They can close the inflationary gap by decreasing the interest rate as well, once the interest rate is decreased, people would purchase more and save less, aggregate demand will goes down and real GDP will go down. The government can also adjust their monetary value by changing interest rate as well. For example, if interest rate of US dollars increases, the demand for US dollars will boost and the supply of their own currency will boost as well. As a result, the US dollars will have a depreciation compared to their own currency. I can affect the price level as well.
To conclude, in my own opinion, government is actually playing a very important role and we should let the government take some control over the economy .
Resource:
http://money.cnn.com/2015/12/16/news/economy/federal-reserve-interest-rate-hike/