Interest Rate Report

Running head: INTEREST RATE REPORT

Interest Rate Report
Dorothy A. Grogan
University of Phoenix
ECO 561 / Economics
Professor Michael Compson
June 8, 2009

Interest Rate Report
Introduction
Big Drive Auto is a multistate dealer of several manufacturer’s cars and trucks. Big Drive not only sells the cars but a large part of their business is servicing the autos. This paper will address the managerial decisions that are affected by increasing interest rates and how increasing interest rates affect the cost of operating a business. The current yield curve will be discussed and what this means for Big Drive Auto’s organizational decision making. This paper will analyze how the change in interest rates can change consumer demand. In closing, some other monetary variables, such as durability, government taxes, and capital goods on hand will be explored.
Decisions Affected by Interest Rates
Large decisions, such as long term investments in new dealership sites or new equipment, would be affected by interest rates. According to the Jednak (2005), “Interest rates certainly have an impact on how business owners make management and operational decisions--particularly decisions about long-term investments in new plants and equipment” (¶ 1). Things such as new service equipment or new buildings are considered capital purchases. Capital purchases are those that add equity to Big Drive Auto’s assets. With increasing interest rates the actual price for such projects will be higher than the estimated costs because the higher interest rate will be applied. Introducing a new model to Big Drive’s line of autos is another decision that would be affected by interest rates. If interest rates are high, the demand for cars will decrease. A market of declining demand is not a good time to introduce a new model. In a market with a decreasing or low interest rate the demand for cars with increase. The dollar can buy more in such a market. This is the market in which consumers... [continues]

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