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Money and Interest Rates

Money and Interest Rates

Money and interest rates are important for individuals and businesses making decisions to finance purchases. The following articles deal with assessing conditions to finance purchases and important aspects of policy.

Tom Woodruff has written an interesting and to-the-point article about effects of the Federal Reserve's monetary policy and changes in interest rates.

"A borrower's guide to forecasting interest rates" Retrieved May 17, 2010.
http://moneycentral.msn.com/content/Investing/Realestate/P39219.asp

Economic Focus: "What goes around", The Economist, Retrieved May 17, 2010.
http://proquest.umi.com/pqdweb?did=1284761571&sid=1&Fmt=3&clientId=29440&RQT=309&VName=PQD&cfc=1

Chan, Sewell (2010) "Fed Study Suggest..." The New York Times, Retrieved August 27, 2010.
http://www.nytimes.com/2010/06/15/business/economy/15fed.html?_r=1&scp=38&sq=&st=nyt

Read the above articles and write a 4 page paper that address each of the following questions:

1. What are the primary economic indicators that you would use if you were thinking about making a large purchase and needed a loan? For example, you may consider a new house, car, or new capital for a business?

2. According to the background material, what are the primary tools used by the Federal Reserve System to change money supply?

3. In August, the government released reports that the economic growth in the second quarter is equal to an annual rate of 1.6 percent, which was slower than expected. What can the Federal Reserve do to increase economic growth. Be sure to mention specific policies.

4. Read the Chan article. How does this article influence your decision to make a purchase that requires a loan?

1,052 words and 4 references

Solution Preview

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1. What are the primary economic indicators that you would use if you were thinking about making a large purchase and needed a loan? For example, you may consider a new house, car, or new capital for a business?
If I were going to purchase a house in today's market there are various economic indicators I would look for. The first indicator I would use would be the new homes sales report which assesses the level of new and privately possessed single-family homes for sale and sold. Traditionally, variances within consumer spending initially appear in the housing market and vehicle sales. This economic indicator is vital to my major purchase since once home sales weaken, the housing market typically begins suffering; thus affecting employment in the specific industries. Slowing real estate sales are principal indicators of a weakening economy and an approaching recession. In addition, I would look to unemployment rates, by state and industry. If homes sales were down and unemployment rates in my state and industry were up, it is probably not the ideal time to make a major purchase (Sullivan & Sheffrin, 2003). If we look at today's market, when the real estate bubble burst in late 2006 and early 2007, our economy started a tremendously fast spiral downward. With rapidly decreasing home sales came tremendously increasing unemployment; with both storms combining, millions of foreclosures and bankruptcies ensued.
2. According to the background material, what are the primary tools used by the Federal Reserve System to change money supply?

The Federal Reserve's chief mission is to guarantee adequate money and credit to maintain economic expansion without ...

Solution Summary

Money and interest rates are examined.

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