Eco 372 Week 1 Dq1 Essay

Words: 1415
Pages: 6

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
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This can be raising or lowering the interest rates and/or taxes. Other factors can be starting unfunded wars, natural disasters, bailouts to the financial services industry's and more. The inflation rate is currently running between 2% to 3%, which is fairly low. The interest rates are very low when compared to historical figures. These two factors should bode well for the economy over the next two years as the cost of borrowing money is very low, which gives businesses the ability to invest in new equipment. This also gives consumers lower payments when purchasing a new car or taking out a mortgage for a new house. There are some dark clouds hanging over the economy right now though, and that is the automatic tax increases and spending cuts, which will take effect if congress does nothing, that if done abruptly could send the economy back into a double dip recession. The two organizations I work for have seen a slow but steady increase in business activity over the last two years and if interest rates and inflation remain low, I believe they will both see improvements over the next two years as well. Both organizations I work for provide financing to customers to have their work done and low interest rates and low inflation are very beneficial to both.

Response