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.
Hello there,am submitting... View the full answer