MacroEconomics

Alan Greenspan and his colleges of the Federal Reserve have been taking over the last 9 months to slow the economic growth of United States. The astonishing growth rate of 7.3% is fueled by an economy that is in the midst of a "high tech revolution". The Fed has increased interest rates too much in its attempts to slow the economy. The means by which Alan Greenspan and the Federal Reserve have chose to slow the economy is through a monetary policy, or more specifically, an increase in the national interest rate. The Fed officials have come to a "broad agreement that they will keep raising the rates until growth slows to a more sustainable pace to make sure inflation stays under control." Because of the booming economy and the investment in the stock market the exchange of money has increased for goods and services, which in turn increases the price level or the quantity of money demanded. By increasing the interest rates the Fed commits itself to adjusting the supply of !

money in the United States to meet that rate at a point of equilibrium. If the interest rate is increased, less goods and services are demanded, and therefore will slow down the economy and reduce the rate of inflation. As "stock prices have risen over t

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One example of this was the increase in cellular phones over in the 1990's. However, because of the erratic patterns in today's high tech economy Greenspan is expected to stick to his pattern of more gradual increases to the interest rate.

Yet the economy has not slowed down, and the demand for goods and services continues to increase as wealth does. Recently the stock market prices had fallen sharply especially in the technology sector. Overall the Consumer Price Index is an important tool provided by the Bureau of Labor Statistics that the government looks at closely to determine the growth of the economy and value of money because of inflation. government watches the CPI as a way to determine how fast the rate of inflation is growing. He points out that the rates that the Fed has set are fairly high in comparison to the rate of inflation as it is currently in the United States. In turn these actions will lead to lower consumer spending, and thus decrease the inflation rate. In this case it makes the bond market much more attractive to investors considering the long-term yields may be higher than other forms of investment. Therefore more money will be injected into the economy and the wealth transfers form the people lending the money to the people borrowing the money.

At this point the Federal Reserve will have to step in and raise the interest rates once again to compensate for the inflation. Time will tell the effectiveness of these measures.

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. " To be said more specifically, the interest rates are increasing faster than consumers' wage increases. It is not bad for inflation to increase at a steady rate, but when there is an unusual spike in the rate, it hurts the economy because when regulating interest rates, it will take a long time to feel the full effects.

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