Essays on Microeconomics Article
due: Article, Microeconomics Microeconomics focuses on making decisions such as government decisions, consumer and business decisions. The decisions are critical because of the scarce resources that are needed by people. For instance, businesses decide the price of their output that is determined by the type of the competitive environment in the market. On the other hand, consumers decide whether to purchase an item or not depending on the price of the commodity, other prices, and various aspects. In regard to the government, it decides whether to levy tax on an item after assessing the sensitivity of consumers to the cost of the particular commodity. This paper will discuss a news article on microeconomics that is no more than sixty days old.
The article under review is titled Fed’s Fisher Calls for ‘prompt’ Rate Hike published on 9th March 2015. The article is about a call to the Federal Reserve to quickly end its simple monetary policy. The head of Dallas Fed argues that the interest rate should increase, and consequently gradually moved higher. According to Richard Fisher, the sluggish wage growth is an insulation gauge and suggests that inflation will come back after the energy prices are stable. In addition, Fisher commented that if the economy grows at the present rate, then the jobless rate will be approximately 4.5 percent by the end of the year (Taboola, Para 9).
In microeconomics, the situation discussed by Fisher can be described using the monetary policy and the interest rate. In the short-term increased money supply results in a drop in the interest rate. On the other hand, a decrease in the money supply causes a rise in the interest rate. The article implies that the implementation of monetary policy is restricted by lag effects. The identification of lag happens because the policy makers have a difficult time in recognizing volatile economic indicators. The lag impact of monetary policy develops difficulties. For instance, a time when the economy is evolving, unemployment is reducing, and prices are not increasing quickly results in inflation. Hence, the article makes a proposal to the Federal Reserve to increase the interest rates. The consumer demand theory in microeconomics states that a change in the interest rate influences savings and consumption. The increase in interest rate results in more savings while the consumption reduces and the reverse is true. The financial institutions lower the interest rates to encourage individuals to borrow, therefore, increasing the spending. The only problem is when people live beyond their means where they borrow without a specific plan of clearing the debt (Taboola, Para 9).
All in all, the low-interest rates allow people to purchase more goods that are interest-sensitive and require funding, for example, furniture and cars. The businesses spend more money on equipment, properties, and factories during the period the interest rates are low. The events occur in a succession where the price level drops, saving increases, interest rates drop, and actual GDP expand. The consequence of this order is a negative connection between quantity and price.
Taboola. "Feds Fisher Calls for prompt Rate Hike." CNBC. 9 Mar. 2015. Web. 15 Mar. 2015.