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Essay / Research Paper Abstract
This 4 page paper looks at the potential impacts that may be observed in an economy in a central bank increases interest rates, looking at the general impact as well as the specific impact ion elements such as big ticket items, NPV calculations, cost of capital and the value of annuities. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEincinterest.doc
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Unformatted sample text from the term paper:
rates are increased when a government wishes to hold back an economy; over stimulation may lead to a demand that exceeds supply and leads to inflation and the process increase
and the increase in production to meet the demand lags. In 2010 there have been very low rates of interest in order to support the economy following a global recession
and credit crunch, however, despite the downward pressures in prices as a result of declining disposable income and declining demand there have been some inflationary pressure due to rising oil
prices and the inelastic nature of the commodity being essential for some many inputs (Nellis and Parker, 2006). With a gradual recovery there is a real potential that the
Federal Reserve may decide to increase interest rates. Looking at this potential decision it is possible to assess the impact it may have in different areas of the economy. To
begin with the general impact should be considered before it is applied to various areas. The decision to raise interest rates may
be to hold back inflationary pressures. As the economy recovers and the aggregate level of disposable income increases in an economy this increases the amount that can be spent on
consumer goods, especially those which are elastic and see increased demand. Elastic goods are those which are not essential, including items such as luxury goods and those which are subject
to discretionary spending. The reason interest rates are increased is to reduce the level of disposable income, when consumers have more to spend to maintain debt, such as mortgages, disposable
income reduces. If a consumer does not have borrowing and is a saver, increasing interest rates may also increase the desire to save; reducing the amount that the consumer is
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