Eco 372 Week 1 Dq1 Essay

1395 Words Feb 20th, 2013 6 Pages
Week 1 – DQ

Identify economic factors that affect the real GDP, the unemployment rate, the inflation rate, and a key interest rate. How do you predict the economy will perform in the next two years given the current state of two of the economic factors you identified? How might your organization be affected by these changes?

Response #1

There are many factors that affect the real GDP such as interest rates, consumer's confidence in spending and/or asset prices. When it comes to interest rates, the lower the rate the less expensive it is to borrow, which encourages spending. For example, those individuals who have a mortgage to pay will have a lower payment; however, when there is a low to no interest rate, it leaves lenders
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As people spend more money, the demand for money also grows. When money is in high demand, the Government lowers interest rates, thus creating access to more funds by more people and more goods will be sold. Consumption is a good indicator of consumer confidence, which means people feel secure about the future and don't mind spending their money on more frivolous things. When consumer confidence is low, people hold onto their money and don't spend as much. I feel that if Americans are confident about their jobs and their future that their consumption will continue to increase and the economy will gradually start to rebound. If , however, they are not confident then consumption will go own and the economy will grow stagnant or get worse. Where I live, the current economic crisis doesn't seem to have penetrated the area as much as other parts of the country. Our unemployment rate for Kansas is 6.3%, fairly low compared to the rest of the country. The highest is Nevada with 12%. Here we have new businesses and houses going up everywhere. My employer, General Electric, has just finished building a 100+ wind turbine park that I am currently in charge of. I don't think that the local area will be affected by the changes in consumption or consumer confidence as much as other areas would be. This town in particular seems to be fairly self contained, lots of local mom and pop shops, not as many large national businesses that if they packed up and left town would harm the

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