If I understand Keynesian theory properly — which is important to understand federal reserve policy — inflating asset values through low interest rates is supposed to trigger businesses to expand because borrowing costs are so low, they can make marginal opportunities work. Business expansion puts people back to work, puts wage income back into the economy, and stimulates demand for more goods and services, which in turn creates more business demand, puts more people back to work, and so on — a virtuous circle.
Was Removing Distressed House Supply Essential to the Economic Recovery?
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