Optimism in the Long Run

2012 WordsJul 15, 20189 Pages
The Wall Street Journal (2014) published an article on January 30th, 2014 discussing the macroeconomic factors that reflect a growing U.S. economy. Some of the key macroeconomic indices discussed include: 1. Gross Domestic Product (GDP) 2. Inflation 3. Trade Deficit. Within these macroeconomic indices lie several of the top ten general economic principles to include: 1. People respond to incentives 2. Trade can make everyone better off 3. A country’s standard of living depends on its ability to produce goods and services 4. Prices rise when the government prints too much money 5. Markets are usually a good way to organize economic activity U.S. GDP grew at an annual rate of 3.2% (seasonally adjusted) in the last quarter of 2013.…show more content…
GDP growth in QTR4 reflected a positive contribution in physical capital. Mankiw (2012) defines physical capital as “the stock of equipment and structures used to produce goods and services (p. 241).” One way for businesses to increase future productivity is to spend its current resources in the investment of its physical capital. The growth in GDP investment spending is an indicator that businesses are investing in their future productivity. The growth in GDP may also be contributable to current Federal Reserve (Fed) monetary policies. Current Fed policy encourages savings, consumption, and investment. According to CNNMoney (2014), two policies the Fed is using to stimulate economic growth are: 1. Very low interest rates (Federal funds rate and discount rate) 2. Quantitative Easing Program: Spending $65B (down from $75B) a month on the purchase of U.S. Government bonds from banks Quantitative easing increases the banks supply of loanable funds. Additionally, the Fed controls the interest rates for banks to loan money to one another (Federal Funds rate) and to borrow directly from the Fed (Discount rate). Banks take loans from other banks or the Fed in order for them to increase the amount of their reserves. When banks feel comfortable with their reserve, they are more willing to loan money. Additional bank lending increases the money multiplier effect. A low federal funds and discount
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