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Through manipulation of the money supply, the Federal Reserve can cause interest rate changes on a somewhat delayed basis. Through the setting of the discount rate and the interbank borrowing rate, the Federal Reserve can exert a more immediate impact on interest rate levels. In the fall months of 1991, the Federal Reserve acted on more than one occasion to lower interest rates in the American economy.

In the development and implementation of fiscal policy, both the President and the Congress can affect interest rate levels. Heavy deficit spending, which has occurred at historically high levels during the Reagan and Bush Administrations, places pressures on the capital markets, which, in turn, often lead to interest rate increases. When one considers that interest rates fell in 1991, it might appear that the relationship described was not working. In fact, however, it was nominal interest rates that fell substantially. Real interest rates in the American economy remained high. High real interest rates are particularly detrimental to commercial real estate development, which has suffered badly in the current economic recession.

Price inflation and employment levels also affect the level of real estate construction and sales. Price inflation acts in a way similar to that of interest rate increases. On the one hand, higher costs reduce the pool of potential buyers who can qualify for a mortg


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REAL ESTATE MARKET. (1969, December 31). In Retrieved 16:36, October 23, 2014, from
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