Using NewsHour Extra Feature Stories

Overview: NewsHour Extra feature stories can help students identify and interpret key issues in current events. This activity anticipates one class period, but the follow-up essay might be assigned as homework or in another period.

Warm Up: Use initiating questions to introduce the topic and find out how much your students know.

Main Activity: Have students read NewsHour Extra's feature story and answer the questions on the reading comprehension handout.

Discussion: Use discussion questions to encourage students to think about how the issues outlined in the story affect their lives and express and debate different opinions.

Follow-up: Students can write a 500-word editorial on the topic expressing their views and send it to NewsHour Extra [extra@newshour.org] for possible publication.

Evaluation: Students are graded on their answers to reading comprehension questions and/or their editorial.

Story: U.S. Central Bank Lowers Key Interest Rates to Boost Economy, 09/19/07
http://www.pbs.org/newshour/extra/features/july-dec07/fed_9-19.html

Initiating Questions:

1. Where do you go if you want to borrow money to buy a house or car or finance a small business?

2. What are interest rates?

3. Where do banks go if they need to borrow money?

4. What comprises the economy? How can you tell if the economy is healthy or ailing?

Reading Comprehension Questions: (click here for printout)

1. What is the Federal Reserve and what did it do this week? Why?

The Federal Reserve, the nation's central bank, lowered two key interest rates to prevent problems in the housing market from seeping into the U.S. economy and causing a recession.

The Federal Reserve cut the federal funds rate, the amount of interest that banks pay other banks to borrow money overnight, by half a percentage point from 5.25 percent to 4.75 percent.

The Fed also cut the discount rate, the amount charged on loans to banks, by the same amount, dropping it to 5.25 percent.

2. When did this last happen? What is the hoped for outcome?

This is the first cut in this interest rate in four years and economists hope that by making it cheaper for banks to borrow money they will be more likely to lend money to consumers for such things as cars, homes or small businesses.

And when consumers can more easily borrow money, the overall economy is stimulated.

3. Describe some of the problems in the housing market that are adversely impacting the U.S. economy.

Over the past year, many people who borrowed money to purchase homes have seen the interest rates on their loans rise. At the same time, the price of the average house dropped. In some cities, homes have fallen by hundreds of thousands of dollars since 2005.

As payments each month get more expensive and houses are worth less, many people who are unable to pay their mortgages -- or home loans -- are losing their homes to the bank in foreclosure.

Many of these people were what are called subprime borrowers. They were given expensive home loans even if they did not necessarily have the money to continue to pay their monthly bills when the interest rates increased.

When this happens to a lot of people at the same time the people and financial institutions who lend this money in the first place are more reluctant to do so and it's harder for most people to borrow money.

4. According to economists, why did the federal government do this?

But the rate cut is a way for the federal government to respond to this crisis and keep it from creating a recession-a period of economic slowdown.

"What it does is it sends a very strong signal to markets that the fed is on top of things, that the fed does not want this crunch to become anything worse, and especially not to spill over to the rest of the economy," economist Nariman Behravesh from Global insight told National Public Radio.

"So it's a way of signaling to the market, 'we know there's a problem, we're doing something about it. Don't worry, don't panic,'" he added.

5. Why do some economists think this was a mistake?

But some economists think the rate cut was a mistake and that the Federal Reserve, led by economist Ben Bernanke, should be concerned more about inflation fears.

Inflation is when there is too much money in the system and the prices of everyday items rises.

"If we get a few decent economic numbers in the next couple of months and some signs of inflation, all of a sudden Bernanke has put himself in a tough spot," Richard Yamarone, chief economist of Argus Research, told the Washington Post.

Discussion Activity (more research might be needed):

1. How do the problems in these credit and housing markets impact the rest of the economy? Make a chain chart showing what might happen if average Americans have trouble borrowing money or can't pay their mortgage and lose their house.

2. What is happening in your neighborhood in terms of the housing market? Are more houses for sale now than a year ago? Are homes selling for more or less? How long are houses staying for sale before they are purchased as compared to last year and the last five years? Where would you go to find this information? How does your neighborhood compare to the rest of the country?

3. Read, listen to or watch this interview with the former head of the Federal Reserve, Alan Greenspan.
http://www.pbs.org/newshour/bb/business/july-dec07/greenspan_09-18.html

Write a 300-500 word essay on either of these topics providing clear examples. Send your completed editorial to NewsHour Extra (extra@newshour.org). Exceptional essays might be published on our Web site.