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The Wall Street Journal October 26, 2015 U. Companies Warn of Slowing Economy Big firms to post first decline in both earnings and sales since the...

In the Wall Street Journal in an article entitled “U.S. Companies Warn of Slowing Economy>” ( WSJ 10/26/2015) it is stated that “From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year. Some of them say they are already experiencing a downturn.” Further on the article it is noted that “The weakness is overshadowing the pockets of growth in sectors such as aerospace and technology.”


Using the attached article and the excerpt from the article above answer the following questions.



Draw a graph of the financial market and interpreting the statements above show what happens to the demand for and supply of loanable funds and the effect of the changes you have noted on investment and interest rates. Further on they note that “The drag on earnings and sluggish growth projections for next year come as the Federal reserve considers raising interest rates for the first in in nine years and could add momentum to those in favor of postponing any rate increases.” Using the financial market again, explain why the events you have presented in the answer to section 1 would lead the Fed to postpone raising interest rates. The article also notes that there are very low energy prices in the economy. Draw an aggregate demand-aggregate supply framework and start with the economy in a full employment equilibrium. Now show the effect of the discussion in the article in this market. Incorporate into your answer the effect of lower energy prices. Once you have arrived at a new equilibrium versus the one you started with, explain why your results may give the Fed less concern about inflation as they continue to keep interest rates low.
The Wall Street Journal October 26, 2015 U.S. Companies Warn of Slowing Economy Big firms to post first decline in both earnings and sales since the recession EN LARGE Railroad operator CSX is scaling back some operations in response to declining coal shipments as power plants switch fuels. PHOTO: PATRICK SEMANSKY/ASSOCIATED PRESS Quarterly profits and revenue at big American companies are poised to decline for the first time since the recession, as some industrial firms warn of a pullback in spending. From railroads to manufacturers to energy producers, businesses say they are facing a protracted slowdown in production, sales and employment that will spill into next year. Some of them say they are already experiencing a downturn. “The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co. FAST-0.70% , told investors and analysts earlier this month. A third of the top 100 customers for Fastenal’s nuts, bolts and other factory and construction supplies have cut their spending by more than 10% and nearly a fifth by more than 25%, Mr. Florness said. Caterpillar Inc. CAT-0.32% last week reduced its profit forecast , citing weak demand for its heavy equipment, and 3M Co. MMM0.48% , whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees , or 1.7% of its total, as sales growth sagged for a wide range of wares. The weakness is overshadowing pockets of growth in sectors such as aerospace and technology.
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Industrial companies are being buffeted on multiple fronts. The slump in energy prices has gutted demand for drilling equipment and supplies. Economic expansion is slowing in China and major emerging markets such as Brazil, which U.S. companies have relied on for sales growth. And the dollar’s strength also has eroded overseas profits. The drag on earnings and sluggish growth projections for next year come as the Federal Reserve considers raising interest rates for the first time in nine years, and could add momentum to those in favor of postponing any rate increase until next year. Profit and revenue are falling in tandem for the first time in six years, with a third of S&P 500 companies reporting so far. Analysts expect the index’s companies to book a 2.8% decline in per- share earnings from last year’s third quarter, according to Thomson Reuters. Sales are on pace to fall 4%—the third straight quarterly decline. The last time sales and profits fell in the same quarter was in the third period of 2009. At some companies, foreign-currency effects hurt results significantly. Consumer-products maker Kimberly-Clark Corp. KMB0.08% predicted that currency swings would slash earnings by 25% this year, while Johnson & Johnson JNJ-0.37% said that the dollar’s moves would reduce sales growth by almost 7 percentage points this year, even without further fluctuations.
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slowing economy.docx

(r)rates Savings2 Savings 1
r2 e2 r1 e1
Investment1
Investment 2 Ef2 Ef1 Quantity of loanable funds(f) Effects of interest rate changes on demand and supply of loanable funds: At e1, we have...

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