CTP 04 - unemployment rate is high. Consumers dont want to...

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Tat Sang Lao ECON 202 – David Bell 27 April 2010 CTP 04 Inflation Economists usually expect that lower FED rate causes inflation grow faster. However, today’s situation is different to what economists usually expect. Low FED rate means more supply of money. Federal Reserve use FED rate to control the supply of money. If Federal Reserve wants more money in the market, it will decrease the FED rate; moreover, more money supply can increase spending so that inflation normally will grow. FED is one of the tools to activate the economy. Federal Reserve employs it to recently recession. But as we can see, it doesn’t help so much. Although the FED rate is low today, inflation is not growing as fast as expected because consumers are still lack of confidence in further economy and the
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Unformatted text preview: unemployment rate is high. Consumers dont want to spend too much, and they trend to put the money into the bank. Therefore, even though there is more money in the market, inflation is still tame. In addition, low FED rate benefits the economy because it reduces the cost of loan. That allows banks to make more loans to people and thereby increase investment. I believe that the TV statement about air fares is correct. It is impossible to have decreasing air fares when the oil is rising. Todays oil price has been more than $80, and it will rise continuously. Also, base on my own experience, I just purchased a flight ticket which costs me $100 more than last year. Also, the price I checked this month is high than last months. Thats why I believe what the TV says....
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CTP 04 - unemployment rate is high. Consumers dont want to...

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