Uop Eco360 Final

ECON 360 - Final Exam

Student's Name: Score = /25

Instructions. This final test incorporates and integrates all the material we studied in Marco-Economics. Please review each question carefully. Please provide your answer in a narrative, integrating economic tools and concepts into your professional life, use examples, professional work-life insights to support your answers. The questions are designed to be completely answered in 1-1.5 pages of written narrative. Good luck!

Q1 (9 Points). Please describe 3 economic indicators, and explain the business value of economic indicators.

Economic indicators are statistics that show how well an economy is doing at the time and how well it will do in the future. One economic indicator is the unemployment rate and what the unemployment rate does is shows the percentage of people in the workforce who are not working the week of the survey. The unemployed rate is calculated by taking the number of unemployed workers divided by the total civilian workforce. During an economic growth cycle the unemployment rate generally goes down and then during an economic decline the unemployment rate will generally rise. Although unemployment does not give the best image in a persons head usually it does carry some benefits with it. One of the benefits that come with unemployment is that it keeps inflation from rising too high; unemployment also gives employers a better choice of employees to choose from and gives a better choice for picking the most talented person for the job. There are obviously negative aspects to the business world about unemployment rate such as if there is a high unemployment rate there is a low real GDP. There is also the cost to the public for the unemployed such as welfare programs and food stamps and other government programs that are set up for the unemployed which decrease spending on productive economic goods which decreases GDP.

Another economic indicator is the inflation rate and the inflation rate is what happens when the price level is continually rising or in other words a fall in the purchasing power of money or the actual market value of money. Since inflation is measured by a rise in general price a index must be determined a few of which are called CPI consumer price index or GDP deflator which is the most vast price index. Inflation does have effects on the business world in many ways one way is when prices are inflated consumer spending may go down depending on the elasticity of the product and the demand of the product. Inflation like I said previously does have effects on the unemployment rate which will rise when the inflation rate falls. Inflation rates are forecasted by analysts to predict what levels they will be at in the near future, although there are expected and unexpected inflation rates it is debatable what the inflation rate will exactly be. Ben Bernake the chairman of the Federal Reserve is the man in charge of attempting to keep inflation rates at a comfortable level for the U.S. as well as multiple other issues the U.S. economy faces.

Another additional economic indicator is the interest rate which is the price a borrower pays for money they do not own. Interest rates are also shown in the form of a percentage over a year period and the rate is calculated by dividing the amount of interest by the amount of the principal. Interest rates are a main determinant on investments and if the interest rates are high that means that the economy as a whole is doing well and people are willing to borrow money at higher interest rates. Like inflation rates the Federal Reserve is involved in with interest rates and the Federal Reserve actually meets eight times a year to set short term interest rates. Because high interest rates make borrowing more costly the fed tries to change interest rates to achieve maximum employment and keep prices stable as well as keeping a good level of economic growth. As the interest rates drop consumer spending increases and that will stimulate economic growth.

Q2. (9 Points). Please explain the functions of the U.S. Federal Reserve System ('The Fed'), and describe how 'The Fed' controls, influences and manipulates the Monetary Policy of the U.S.

The U.S. Federal Reserve System has many functions that affect the United States economy and those functions generally fall into four different categories. First of all the Fed conducts the national monetary policy by influencing the monetary and credit conditions in the economy in order to achieve maximum employment, stable prices, and moderate long-term interest rates. Next the Fed supervises and regulates banking institutions to ensure the safety and stability of the U.S. banking and financial system and to protect the credit rights of U.S. consumers. Also the Fed maintains the stability of the U.S. financial system that may arise in the U.S. financial markets. Finally the Fed also provides financial services to depository institutions, the U.S. government, and foreign official institutions and is included in playing a large role in operating the nation's payment system. Monetary is the Central Bank's process of managing money to achieve specific goals. The Fed in this case is using the monetary policy in order to contain inflation, maintain exchange rates, achieve lower unemployment rates, and economic growth. To achieve those previous goals changing certain interest rates through certain open market operations, setting reserve requirements,