Got a tricky question? Receive an answer from students like you! Try us!

Introduction to Economics - Essay Example

Only on StudentShare
Undergraduate
Essay
Miscellaneous
Pages 13 (3263 words)

Summary

At the end of June 2003, the Federal Reserve cut interest by a quarter-point to 1.0 per cent, their lowest level in 45 years. This was the 13th reduction in short term US interest rates, from 6.5 per cent at the start of 2001. The aim of the work is to explain, what the three main channels through which the interest rate will influence aggregate demand are, and how these impacts are applicable to the US economy through the period of 2002-2004.

Extract of sample
Introduction to Economics

The decrease of the interest rates accounting other factors being stable, leads to the increase of the new equipment among firms, which they plan to purchase, it also increases the number of new houses, and the goods of long-term use. Changes in the price levels through the impact on the amount of money in use also influence interest rates. Changes in the interest rates, caused by the changes in the price levels, changes the aggregate demand on goods and services; however, in graphic form this does not make the aggregate demand curve shift; it only reflects the movement along the already existing line. (Handa: 2000)
However, interest rates also create another impact. No matter what may be the reason of the interest rates' change, their level impacts aggregate demand as a whole. Separately from the price level change, the aggregate demand curve shifts with the changes in interest rates. For example, if the government comes down to the higher expenditures and loans to cover the deficit, with the other conditions stable it leads to the increase of interest rates and negatively influences the plans of expenditures for the firms and individuals. ...
Download paper
Not exactly what you need?

Related Essays

Introduction to Management -- Economics, Finance and Management
One of the stakeholders of the firm may be its customers who can significantly be involved in the stakeholder’s conflict. This may be due to the fact that the customers may not be willing to purchase the products of the firm due to various reasons including firm’s reputation for providing environment friendly products etc. This may be an strong point of conflict between the firm and its most important stakeholders.…
4 pages (1004 words)
Introduction to Accounting and finance -- Economics, Finance and Management
The expenses of the company increases and company may not have enough cash available to meet its expenses. Therefore, the cash deficit is met by bank overdraft which affects company’s liquidity position.…
4 pages (1004 words)
Introduction to Accounting and finance -- Economics, Finance and Management
They are very disturbed with months like September recording a high sales volume and November recording a low sales volume. This could prove to be an issue for the working capital in the long run and the concept of going concern. (Fields. E., 2002). It would be better if the manager’s focus on achieving uniform sales targets every month so that the working capital available could be more consistent giving way for better planning.…
4 pages (1004 words)
Introduction to Accounting and finance -- Economics, Finance and Management
They may buy from either U.K or South America depending upon the option which will help them to increase the cash flow.…
4 pages (1004 words)
Introduction to Accounting and finance -- Economics, Finance and Management
reality this may not be the case, the company may face sudden changes in any of these estimates and if any major change occurs, it would definitely affect the estimate and the cash flow forecast presented above. Although the company’s cash position improves gradually during the 6 month period according to the cash flow forecast there may be certain areas that may need to be considered. (BusinessLink, 2010)…
4 pages (1004 words)
Introduction to Accounting and finance -- Economics, Finance and Management
The result is that immediately on payment for bulk purchases from UK supplier, the company will be requiring more than the available OD facility of £25000. It appears from projected cash flows that after meeting payment for bulk purchases the company will be in position to manage its liquidity within the available line of credit.…
4 pages (1004 words)
Economics
Friedman’s main argument is that tax cuts and little or no intervention by the government in regulating private enterprise would help entrepreneurs to produce more at a lower cost. Thus consumers would benefit from plenty of cheaper goods. However conservative economics has acquired a newer dimension in that the absence of concern among conservative economists for environment related problems is changing for better.…
12 pages (3012 words)