Economic 2
The American economy has many components which contribute to its growth and which affect its rate of inflation, but the overriding stimuli stem from the monetary and fiscal controls imposed by the Federal Reserve and government, respectively. The economy has enjoyed modest growth for several years, and that can be expected to continue. The Federal Reserve is likely to raise interest rates in late 1999 or early 2000 in order to keep the rate of inflation down; this research considers the reasons that this is likely.The Federal Reserve sets interest rates by mandating the rates at which Federal Reserve banks loan funds to other institutions. These rates then affect the rates of those institutions as they seek to maintain their profit. Thus an increase in rates by the Federal Reserve results in an increase in interest rates charged to customers by financial institutions throughout the nation. Investors may, in this instance, move some funds out of other investments in order to take advantage of the higher rates (such as moving out of bonds), and the stock market may see a decrease in value as investors weigh the effect of the interest rate increase on corporate borrowing.
In considering where the American economy is headed over the next 12 months, it is important to remember that the economy is part of the American business environment as a whole. Because the Fed's current board of governors has demonstrated that it is uniquely concerned with the inflation rate, it is unlikely that the Fed will permit the rate of inflation will increase significantly over the next year. So long as inflation is low and the economy is operating at a good pace, the government does not need to provide too much additional stimulus through the purchasing of goods and services. If the economy slows down, however, which is unlikely in the next year, the government will be put under pressure to step up its consumption. The next 12 months are unlikely to see significant deviation from the current economic state, but there is likely to be some alteration in Fed policy. The Fed has raised interest rates twice in 1999; another such increase is likely over the next 12 months in order to slow economic activity and prevent inflation. Kraus, J. (1998, May 7). Supervision reforms called for to remedy Asian financial woes. American Banker, p. 20. Table A-5: Employment status of the civilian population by sex and age. (1999). Washington, DC: Bureau of Labor Statistics. Internet address: http://s
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Approximate Word count = 884
Approximate Pages = 4 (250 words per page double spaced)
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