Problem Set 5 Essay

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?

The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic growth and improvements in the job market.

Assuming the Fed chooses to shrink the money supply, explain how each of the three tools would be used. If the fed chooses to shrink the money supply

The final accelerated trend reviewed is the pattern of price instability. Over the past thirty years companies grew to expect an overall steady price environment. This is no longer the case. The article suggests that “rather than trying to accurately forecast inflation or deflation – an impossible task – companies should focus on how they might manage price instability” (Beinhocker et al., 2009 p. 60). They recommend reviewing contracts with suppliers, wage agreements, policies on pricing,

b) In the short-run, what will happen to the price level and output (real GDP)?

As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.

1). In 2016, the inflation rate was at 2.07 percent, and as of February 2017 the rate is about .90 percent (“Inflation Rate,” n.d.). As we can see, the economy has bounced back from its position during the recession. GDP has increased drastically since 2009, unemployment has decreased past its position from 2007, the interest rate has risen, and inflation has also gone up which indicates a strong and healthy economy. Although a higher interest rate is unfavorable for consumers and businesses, it means that the government is confident that the economy will continue to improve. This also means that consumers have enough disposable income to spend on whatever they wish, so the government does not need to lower the rate in order to encourage borrowing and spending. These metrics indicate that the economy has recovered from the Great Recession, and is continuing to improve.

* Products remain relatively steady in pricing at an affordable cost even in leaner times when inflation rates and other benchmark indicators force people to slow down their spending

I believe prices can remain high as long as demand supports it, but demand is not constant and will rise and fall until equilibrium is reached.

IS-LM model can be used to show the effect of expansionary and tight monetary policies. A change in money supply causes a shift in the LM curve; expansion in money supply shifts it to the right and decrease in money supply shifts it to the

The Federal Reserve has set the current interest rate a 0.13, this number is unchanged from the previous week (Board of Governors of the Federal Reserve System, 2015). The current trend for the year 2015 is that the interest rate is beginning to slowly increase (Board of Governors of the Federal Reserve System, 2015). The inflation rate has remained at 0.1 or less for the year 2015, the latest inflation rate was release on June 2015 and was calculated at 0.1 (Coinnews Media Group, 2015). This was the first time in 2015 that the inflation rate has increased. Previous months were either negative or unchanged (Coinnews Media Group, 2015). However, this is an increase from the previous month. The interest rate and inflation are inversely related,

Next, the economics will become better off is because of the stability of the price. The price for the product in this market is stable. This is due to there

The common tools for expansionary monetary policy are the open market purchase of securities and lowering of the FED landing rate. Because of increased availability of money the aggregate supply will not keep up with rise in demand hence leading to

This essay will explain and illustrates the key mechanism behind the money multiplier and explore how monetary authorities can influence its size and affect the money supply in the economy. Firstly, an introduction on money measure will be presented. Secondly, the mechanism behind money multiplier will be presented by using equations to explain the cyclical changes in the multiple factor. Thirdly, the examination of the money multiplier in the current economic climate will be put forward. Fourthly, an explanation on the open market operation, discount window and the reserve ratio will be presented to convey the influence in the size of money supply. Finally, this essay will conclude with an overview of the essay.

Next, text the stationary of money supply growth. The results show that the p value of money supply growth ADF test is also equal to zero, which is same as that of output gap, so we reject null hypothesis and confirm that the data of money supply growth is stationary.