Questions On The Interest Rate

ECON 2301 Principles of Macroeconomics Time: Th 7:05 pm – 9:45 pm Synonym: 40512 Section: 023 Room: NRG2 2120

this report is going to discuss the money market and how interest rates are determined, it will then look at the effects of lowering and raising interest rates and the limitations of these effects. the money market is a section of the financial market where short term loans and financial instruments are traded, for example these could be short term loans between banks with the debt maturing in less than a year.

c. It should appear in the tail signifying a positive relationship, with .05 in that tail.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for years to ensure inflation was kept in check and to promote economic growth. It appeared the economy would be in for another increase in the interest rates sometime this year, but the Feds have rethought that strategy. If the Federal Reserve were to continue to raise interest rates it would have short-run and long-run effects on the Money Market, Goods and Services Market, Planned Investment, Phillip Curve, and Aggregated Supply and Demand. These effects are aspects that have to be considered because they express and explain the effects the increase in interest rates has on the economy and explain if the Federal Reserve is enacting the correct policy to achieve their goal.

Moreover,some economists also argue that an increase in the rates now would be better than waiting until later on when the Federal Reserve will have to increase the rates eventually. Unemployment is also at a low rate, and the economy appears to be stable enough to handle an increase in the interest rates. The Federal

The 2008 Great Recession helped in restoring economic growth and lowered unemployment. Both fiscal and monetary policies are related ways use to increase the aggregate demand and aggregate supply. So, a shift in the aggregate demand curve to the right is expansionary fiscal policy meaning government spending has to exceed (2012). The G- component aggregate demand help to spend, allowing the C- component of aggregate demand to increase. On the other hand, the monetary policy promotes spending, investments, and lending increasing aggregate demand. During the downturn, the systems concentrate on growing demand total while the supply strategy looked for long-term growth in productivity and efficiency (Pettinger, 2012).

Refer to the sets of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. Use the graphs to explain the process and steps by which each of the following economic scenarios will shift the economy from one long-run macroeconomic equilibrium to another equilibrium. Under each scenario, elaborate the short-run and long-run effects of the shifts in the aggregate demand and aggregate supply curves on the aggregate price level and aggregate output (real GDP).

Over the past year we have gone through many changes politically, environmentally, and more. The main change occurring today is the Federal Reserve’s control on monetary policy which affects the interest rates and money supply all caused by the buying or selling of government bonds. The Federal Reserve needs to raise interest rates because they have “remained relatively slow by historical standards” (Binyamin Appelbaum, July 7, 2017). However, the inflation rate and rate of growth in GDP have been relatively low, restraining the Fed from raising the rates too high.

increase them to the neutral rate in order to ensure that lowering rates is a viable monetary policy

4. The hypothesis about the macroeconomy that sees the recent problems with the U.S. economy directly

Meanwhile, strengthening activity has also been registered in the service sector: the ISM’s Report on Non-Manufacturing Business also increased significantly in September. Recent readings of live GDP forecasts for Q3, courtesy of the Federal Reserve Bank of Atlanta, have been trending upwards over the past few weeks, the latest being +2.7%. Carrying such momentum into Q4 would, therefore, suggest more labour market tightening, thereby further justifying an increase in the federal funds rate in December. Crucially, both ISM Surveys indicate that price pressures have been rising significantly over the past four months, helping to support Fed Chair Yellen’s view that weaker-than-expected inflation is attributable to transient forces.

Amid the past FOMC meeting international value costs increased, shared assets picked up and developing business sector spreads limited. The FOMC members anticipated that the close term forecast for real GDP growth was weaker then there previous expectation. Real GDP was expected to expand at a slower rate in the primary quarter than in the fourth quarter, however growth was projected to move back up in the second

is not the same as the conventional vertical considering. As indicated by de Bono (1970) horizontal

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put