Monetary policy committees,
The central bank plans to revitalize the economy through mobilization of $400 billion dollars from the public by motivating them with high interest rates at the present rather than the future in an economy where Uncle Dan plans to invest in homes and shops by converting his corn firm into other generating incomes. The Uncles idea is very fine as it would diversify his income base of the coming day’s but there is other economic possibilities provided by the feds which would affect the demand and supply of the uncle’s properties.
Through collection of the fund, the central government would have enough capital to invest in various economic aspects that would increase growth in the long run. In the short run there would be relatively high rates of unemployment due to reduced money supply in an economy (Piros, 2013). Borrowing of funds will be quiet expensive as the rates of interest would be hiked to discourage the general public from holding more funds as the population remains relatively low decreasing the demand.
Since the central bank offering more interest at present, the general public will have desire to invest in the feds proposal and limit other wants as it would be profitable to hold the government securities than to hold money (Mariathasan, 2010). The population in the nation is relatively low with little income at their disposal and with an increasing levels of unemployment, an increase in supply to any public commodity will not yield profits rather losses. Even if the feds invests the money for the improvement of the society, in the short run the economy will have to bear with increasing rates of inflation due to the reduced circulation of money
Due to the economic changes above, I would advise my uncle not to invest in the shops and houses as it would be relatively expensive as the rates of construction will be relatively high due to the high interest rates (Mariathasan, 2010) Furthermore, the demand for the commodities will be highly reduced due to the decrease of money that circulates in the economy leaving consumers with relatively small amounts to spend on utilities like new housing. Housing construction are investment that is majorly determined by the population of the country. A small population will make the venture unattractive while taking a much longer time to recover its cost which will only results in holding capital that would have been otherwise invested elsewhere like in the government securities which would bring instant income in the present and the future. The economy will also grow at a slower pace to entice the general public to improve their standards of living hence the chances are small that people will move into the new houses. My uncle would rather continue with his production of the corn as it would net more income in the present periods than to shift in other investment areas.
Mariathasan, M. (2011). Monetary policy committees, universal banks, and public recapitalisations. Florence: European University Institute.
Piros, C. D. (2013). Economics for investment decision makers micro, macro, and international economics. Hoboken, N.J.: Wiley.
Berkelaar, A. B., Coche, J., & Nyholm, K. (2010). Central bank reserves and sovereign wealth management. Basingstoke [England: Palgrave Macmillan.
The role of loan market spillovers and the loan rate of interest in total inventory investments. (1984). Dublin: Central Bank of Ireland.
Galí, J., & Salido, J. D. (2002). Technology shocks and monetary policy assessing the Feds performance. Cambridge, MA.: National Bureau of Economic Research.
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