Assignment:
You will to need to access MyEconLAB, News section then access: View the latest news update and look for Three Rate Cuts in a Row? Investors Hope It's True (Macro News for October 26, 2019 - November 1, 2019)
Horowitz, Julia
CNN.com
10/28/2019
Read the article and answer the questions, typed, double spaced.
Keywords
Interest rates, economic growth, monetary policy, expansionary monetary policy
Current News Topic
Monetary Policy
Article Synopsis
Investors anticipate the Federal Reserve will deliver another round of interest rate cuts to counter economic weakness. Most experts believe that the economy needs additional protection from the "global economic slowdown" and the ongoing trade war between the US and China. The CME Group's FedWatch tool shows a 94% probability the Fed will cut rates another 25 basis points at the next meeting.
Many experts believe that falling domestic demand, low wage pressures and low inflation indicate that the "economic weakness is spreading" and that additional Fed action is needed. A Reuters survey of economists shows that third quarter US GDP growth is expected to be about 1.7% and October job growth will fall way below the 136,000 new jobs added in September 2019.
Other experts believe that improvements in the trade outlook and a resolution of the GM strike could cause the Fed to "hit the pause button." A wait-and-see attitude gives the Fed additional flexibility to lower interest rates at a later date if deemed necessary.
Questions 1
1. Fill in the blank: Lowering interest rates is an example of ______________ monetary policy.
2. The Federal Reserve is more likely to lower interest rates when inflation is;
a. below 2%
b. higher than 10%
c. above 3%
d. none of these
3. True or false: The Fed is more likely to raise interest rates when the GDP is falling.
Questions 2
1. Complete this sentence: A Reuters survey of economists shows the consensus economic growth estimates for the third quarter of 2019 is;
2. The CME Group's FedWatch tool shows a probability the Fed will lower interest rates another 25 basis points at its next meeting.
a. 85%
b. 94%
c. 55%
d. none of these
3. True or false: The Federal Reserve's inflation stance is considered to be very hawkish at this time.
Discussion Questions 3
1. Why is the Fed expected to lower interest rates at the next FOMC meeting?
NOTE TO INSTRUCTOR: Discuss other expansionary policy actions.
2. What is the danger of lowering interest rates too fast?
NOTE TO INSTRUCTOR: Show demand pull inflation graphically.
3. What is the danger of lowering rates too slow?
NOTE TO INSTRUCTOR: Show the business cycle on the board and discuss the current period of expansion.