How Should the Federal Reserve Handle the Interest Rate

How Should the Federal Reserve Handle the Interest Rate

  • Submitted By: liam0514
  • Date Submitted: 02/15/2009 6:19 PM
  • Category: Business
  • Words: 1117
  • Page: 5
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Michael Daly
Prof. Nakosteen
Economics Final Paper

It is very hard to accurately describe the current state of the US economy at any given moment. However, it is sometimes better to compare the economy at the present with the economy at some given point in the past to more accurately describe if the economy is growing or contracting. Currently, the economy in the US is waning in some areas, stabilizing in others, and even rising in some sectors.

Over the past year the US economy has seen a long slump in housing sales, rising oil prices, and increased health care and energy costs. One way to analyze how the economy is doing in any of these areas it to take a look the market value of all final goods and services produced in the US in a given period of time; in other words, take a look the Gross Domestic Product (GDP) and the factors that contribute to it. If we take a look at the GDP information presented on the Bureau of Economic Analysis website,, we can see which sectors in our economy are rising and falling when compared to previous years’ results.

Table 1 on the BEA website provides an overview of the sectors that make up the GDP. From this table we can see that the GDP was only rising at a rate of 0.6% in the first quarter, Q1, of 2007, whereas it was rising at a rate of 2.1% in Q4 of ’06. Comparing the rate at which the GDP is rising from one quarter to the next can help us understand if the economy is growing or declining. With early results for Q2 of ’07, the rate shot back up to 3.4%. These statistics show us that the economy is doing better than it was in the previous quarter, but that it is not stable.

There are many factors that contribute to the rising and falling of the GDP such as the cost of living, which is measured as the Consumer Price Index. The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. This year, higher transportation...

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