Inflation Unemployment and Fed

Document Type:Essay

Subject Area:Economics

Document 1

Its main consideration is on the deflation and inflation in an economy. A higher GDP in general means an increased economic growth. The GDP, however, may show some growth in a country that is not reflected in the improvement of a given economy. The GDP is just a representation of the summing up the spending of the consumers, the surplus of exports about imports, investment made by companies and industries and the total spending of the government. The actions described are not sufficient on themselves to show an increase in the economy as they may be checked closely to their effect on the inflation rate. To measure the rate of inflation it is important to determine the consumer price index and the producer price index.

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The changes in the price indices are used to measure inflation. In most instance investors are more concerned by the consumer’s price index than the producer’s price index as they seek to determine the inflation rate. Inflation has effects both to the lender and the borrower. If there is inflation a borrowers tend to seek for more cash from the lenders and hence lending will be more. Structural unemployment occurs when companies retrench workers due to the adjustment in the long run. Seasonal unemployment occurs in industries that produce goods at a certain time of the year and their production goes down after sometime. The Federal Reserve seeks to avert cyclical unemployment as it is the one brought about by economic adjustments.

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The aggregate supply is the number of goods and services that are available in a given economy. It is also a representation of the amount that a firm is willing and can produce and supply. Each bank has to keep a certain amount of money each night with the Fed reserve each night (Rate 1399). It also uses its discount rate as the banks borrow from the reserve. It is, however, a rarely used tool as the bank rarely borrows from the Fed reserve as there is a stigma attached to it. To achieve maximum employment, it carries out assessments from time to time and acts upon the statistics accordingly. It also focuses on stabilizing the prices to control the prices as a tool to curb inflation hence promote investments.

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The article describes the sole mandate that the fed have towards the control of the interest rates even if analysts do not agree with them. The article on Federal Reserve in the Economist in April 28th, 2016 explains the actions that the Fed takes upon in the economy in case it seeks to curb the interest rates. It acts upon a continuous surge spread brought about by the increased government borrowing. Another consideration is on the inflation expectations that also have to be controlled by the amount of money that is supplied to the economy. Through thorough analysis, the Fed comes up with a measure to determine the best way forward for the economy. w20423. National Bureau of Economic Research, 2014. Kroft, Kory, and Matthew J.

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