" (2006) Boyd and Champ additionally state that: "The world has seen a dramatic decline in inflation rates in recent decades, but concerns about inflation may still be warranted, especially in some countries. Evidence is mounting that inflation is harmful to economic activity even at fairly modest rates of inflation because of the way it adversely affects the banking sector and investment." (2006) In the private sector "high interest rates have their most dramatic impact on equity investments - both stock market and private." (Understanding Inflation: So What's to Worry About, Anyway?, 2006) Additionally stated is that: "High interest rates show their effects by: (1) direct competitor for the investor's dollar. By increasing the difficulty of raising equity capital, high interest rates directly undermine financial stability and slow the growth of economic capacity needed to meet inflationary demand. They reduce price/earnings ratios; (2) High interest rates increase economic costs and risks for the individual business and the economy as a whole. In addition, high interest rates can obviously reduce incentives for long-term economic projects; (3) High interest rates reduce borrowing for consumption, production and investment purposes. Ultimately efforts to keep interest rates down by means of rapid money supply increases must lead to higher interest rates than would otherwise occur." (paraphrased; 2006)
III. HOW DOES THE FEDERAL RESERVE BOARD CONTROL INFLATION?
The Federal Reserve System's implementation...
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