In 2007, the Federal Reserve began a series of cuts in interest rates designed to stimulate investment spending by firms.

In 2007, the Federal Reserve began a series of cuts in interest rates designed to stimulate investment spending by firms. At the same time, housing construction, a component of investment, was dropping sharply. Go to www.census.gov and click on “Housing and New Construction” to see what happened between 2007 and 2009. Besides the drop in interest rates, what other factors might have influenced the level of investment spending during those years? Do you think the Federal Reserve achieved its goal? Explain.

AnswerThe data presented on “Housing and New Construction” between 2007 and 2009 shows thatthere is a drastic drop in the interest rates and the prices of the houses. Apart from the drop in...