MacroEconomics
Alan Greenspan and his colleges of the Federal Reserve have been taking over the last 9 months to slow the economic growth of United States. The astonishing growth rate of 7.3% is fueled by an economy that is in the midst of a "high tech revolution". The Fed has increased interest rates too much in its attempts to slow the economy. The means by which Alan Greenspan and the Federal Reserve have chose to slow the economy is through a monetary policy, or more specifically, an increase in the national interest rate. The Fed officials have come to a "broad agreement that they will keep raising the rates until growth slows to a more sustainable pace to make sure inflation stays under control." Because of the booming economy and the investment in the stock market the exchange of money has increased for goods and services, which in turn increases the price level or the quantity of money demanded. By increasing the interest rates the Fed commits itself to adjusting the supply of !money in the United States to meet that rate at a point of equilibrium. If the interest rate is increased, less goods and services are demanded, and therefore will slow down the economy and reduce the rate of inflation. As "stock prices have risen over t
The Consumer Price Index is another very important tool to observe. The U.S. government watches the CPI as a way to determine how fast the rate of inflation is growing. The CPI is a good measurement simply because it is an index of all the goods and services used by consumers in households, and is calculated on a monthly basis. The goods and services that are actually looked at come from a survey of the past couple of years. Usually economists look at the core rate of the CPI, which excluded food and energy prices, since they fluctuate so rapidly. Some examples are where the corn produced in the United States could be directly affected by the weather. Also the recent oil price increases is directly related to OPEC and their choice to cut back on the production of oil. However the CPI is not a perfect measurement as Alan Greenspan, chairman of the Federal Reserve, has acknowledged. It usually overestimates the rate of inflation because the goods looked at are from previ! creasingly lower. Or in simpler turns, the money that is paid back to the lenders is less and less over time. Therefore more money will be injected into the economy and the wealth transfers form the people lending the money to the people borrowing the money. ation in the economy. As the rate of inflation increases, so will the bond yield rate to compensate for inflation. In this case it makes the bond market much more attractive to investors considering the long-term yields may be higher than other forms of investment. At this point the Federal Reserve will have to step in and raise the interest rates once again to compensate for the inflation. It is not bad for inflation to increase at a steady rate, but when there is an unusual spike in the rate, it hurts the economy because when regulating interest rates, it will take a long time to feel the full effects. Another way of looking at how the rate of inflation is affecting the economy is in terms of the earnings of many corporations. When analysts predict the estimates for future earnings, the rate of inflation is figured into their calculations. However in the case of April of last year, the inflation rate as seen by the CPI increased unexpectedly.
Some common words found in the essay are:
Federal Reserve, Chase Securities, Price Index, Labor Statistics, Dow Jones, rate inflation, Alan Greenspan, federal reserve, inflation rate, stock market, slow economy, alan greenspan, raising rates, price index, Consumer Price, Bureau Labor, bureau labor statistics, slow growth, fed officials, price index tool, consumer price index,
Approximate Word count = 1485
Approximate Pages = 6 (250 words per page double spaced)
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