Higher Interest Rates example essay topic

The economy over the last eighteen months had started with moderate production, but began to slope into a recession causing the unemployment rate to rise. Beginning in the fourth quarter of the year 2001, the Federal Reserve decided to lower its federal funds rate to 1-3/4% (this was the lowest rate in the last 40 years). With this move the economy expanded quickly not soon after the change. Consumer Spending increased considerably and housing production was on the rise with the help of good weather. The Gross Domestic Product (GDP) had increased at an annual rate at an excess of 6%. With the inflation adjusted at such a low rate, interest investments began to decline and business investments for an increase of capital had increased.

The Fiscal Policies action to lower taxes, give investment incentives, and increase higher spending are stimulating the aggregate demand curve in a positive way. With a combination of a decline in our foreign exchange value of the dollar, the unemployment rate at a low percentage maintaining around 4.5%, and economic growth strengthening, our economy was heading on the right track. In the beginning of the year of 2002, the pace of the economy was still rolling at a steady pace, mainly because of the unchanged pace of 2001. The increase in real (GDP) was taking off rapidly with a surge of government spending on military defense, and weather related conditions which in turn was destroying property. Inflation was on the rise due to higher energy costs, but soon dampened a bit causing the inflation expectations to remain stabilized in the first half of the year.

The competitive pressures of the foreign markets soon started to limit the growth of profits for the economy. With this in mind the (FOMC) decided to keep the federal funds rate at 1-3/4% unchanged. The (FOMC) thought it would be the best interest for the economy to achieve its long run objectives to keep the rate this low, but still faced the possibility that economic growth with the relatively high unemployment rate and lack of price pressures will cause the economy to fall short of its given potential. The outlook of the end of the 2002 year and surfacing the 2003 year tends to look promising. The members of the Board of Governors and the Federal Reserve Bank, whom all participate in deliberations of the (FOMC), expect the economy to expand rapidly over the next six quarters. (GDP) is expected to rise a 1/4% for the year 2002 and 1/2% for the year 2003.

The 2003 deficit is expected to be less than one percent of the total (GDP). If, growth promoting policies are pursued and withhold on spending is exercised, deficits will be both small and temporary. The government will need to higher interest rates to induce investment spending. With all done and said, I like the look our economy is heading, especially after the September 11, 2001 terrorist attack. I think the citizens are regaining faith in our government's authority and are now increasing their spending on consumption goods, as well as investments in the stock markets which is slowly increasing after one of its all time lows. Hopefully our economy will exceed in the future comings to maintain as the most powerful nation abroad.