Aggregate Economic Behavior Of The U.s. Economy

Running Head : AGGREGATE ECONOMIC BEHAVIOR OF THE US ECONOMYAggregate sparing Behavior of the US Economy : The Significance of brief And Long Term raise Rates[Author][Affiliation][Date]Aggregate Economic Behavior of the US Economy : The Significance of Short And Long Term Interest RatesThe recent trends in the US economy indicated that it is slowing downwards (in economic terms , stagnating . The widening trade deficit with mainland China is forcing many companies to transfer a significant portion of their dandy to China (which offers a huge market for American goods . Added to that , the out of the blue(predicate) decrease in retail sales just a couple of weeks ago forced the organization to issue episodic bonds to reinvigo roll the industry . The unexpected point drop in the said industry was supplemented by the devaluation of the US dollar against the Euro some(prenominal) economists think that the US economy is experiencing what Japan experienced 10 years ago : a receding economyThis situation of the US economy can be partially explained by analyzing the causal agent of chase judges in the country . There be generally two types of pursual rates : pithy and long matter to rates . Short-term interest rate is the interest rate charged for short loans . Long-term interest rate is the interest rate charged for long-tern loans as headstrong by the Federal Reserve Board . The Board determines the intensity level of silver circulating in the economyIn a simple relationship , spicy interest rates motivate lenders to put more gold in bank . Investors though borrowing from financial institutions ar forced to delay their borrowing schedule .

In short at that place is an inverse relationship between interest rate and investment Investment is represented by (I , the amount change into smashing Interest rate is represented by (r , determined by the volume of property circulating in the economyShort-term interest rates are more fluid than long-term interest rates A slight change in the volume of money in the economy results in a greater change in the interest rate schedule of banks (for short-term loans . Long-term interest rates are usually unmoving in the short-run Effects can be sensed after a series of interest rate restructuring is implement . Usually , the government announces a decrease or add in the interest rate in to give financial institutions time to adjust their interest rates . Hence , the government is responsible for fixing the monetary policy of the country (in this typeface , the USHow is interest rate related to the volume of money ? If there is an increase in the volume of money circulating in the economy , interest rates decrease . Banks are less(prenominal) willing to increase the savings deposits of potential depositors . If the volume of money decreased , banks are more willing to lend investors capital . Note that the relationship is also inverse (this is an extension of the I and r relationshipReferenceFederal Reserve Bank of New York (2007 . Retrieve on October 21 , 2007 from http / http /www .ny .frb .org Aggregate Economic Behavior PAGE MERGEFORMAT 1...If you want to get a expert essay, order it on our website: Ordercustompaper.com

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