Weekly Reflection
Macroeconomics is a fascinating area of study. Students of economics learn about economic interactions between households, business, and government. They study gross domestic product and the effect inflation and unemployment has on the aggregate economy. Students add to their vocabularies terms, such as Keynesian, money wealth effect, and the principle of increasing marginal opportunity. They ponder issues, such as if a country is operating inefficiently and hence is at a point inside the production possibility curve because its lawns produce no crops, but occupy more land than any single crop, such as corn. In addition, students discover that AS/AD is an economic model, not a hard rock band. This week, rates of interest, the United States’ monetary policies, and the Multiplier Model are topics students have an opportunity to explore.
Rates of Interest
In the world of economic studies, the term, interest rates, inevitably comes up. Interest rates are key factors within the financial sector. Economists define interest rates as the process charged for the use of financial assets. Interest rates fluctuate almost daily. The largest contributing factor is the current economy of the country. When the economy is growing, people are getting more employment, and more saving and lending occurs. Interest rates tend to increase as the demand for money increases. The opposite holds true when the demand for money falls. As the demand falls, interest rates will fall. Another factor that affects interest rates is acts of the government. The federal government is the largest borrower of funds and holds the power to change laws regarding tax. Transferring their interests between financial assets and money, people can affect the demand for money. Sometimes, people choose to hold onto their money rather than to buy bonds that pay more interest than money. Some