Eco 372 Week 1 Dq1

Topics: Inflation, Unemployment, Money Pages: 4 (1399 words) Published: March 3, 2013
Week 1 – DQ

Identify economic factors that affect the real GDP, the unemployment rate, the inflation rate, and a key interest rate. How do you predict the economy will perform in the next two years given the current state of two of the economic factors you identified? How might your organization be affected by these changes?

Response #1

There are many factors that affect the real GDP such as interest rates, consumer's confidence in spending and/or asset prices. When it comes to interest rates, the lower the rate the less expensive it is to borrow, which encourages spending. For example, those individuals who have a mortgage to pay will have a lower payment; however, when there is a low to no interest rate, it leaves lenders feeling less confident and unable to grow. Another factor would be the confidence of the buyer; and in my opinion, this is one of the more critical factors affecting the GDP. In order for the economy to grow, the spender and seller must have the confidence to provide and purchase goods. Should either or be unsure it will reduce spending and in turn offer more to the economy. Asset prices, or the rise in housing, is another factor affecting the real GDP that has the potential for creating a positive wealth effect. The wealth effect refers to the increase in spending along with an increase in perceived wealth. I believe that the economy should only get stronger should these factors play a role. Lowering interest rates, more confident consumers and asset pricing, will only allow for more money to be brought back into the economy, thus changing/helping it's current state. In the state of Arizona, even if it has been slight, there has been a rise in the housing market. A slight increase in price but there is actual spending happening. This is what our state needs as well as most states across the US.

Response #2

The main factor I have chosen is consumption, be it either by the Government or by the people, consumption directly...
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