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Quantitative easing (QE), is basically a government monetary policy. It is introduced, implemented as well as followed through by the central bank under the government. This is an increase in the bank’s balance sheet by means of collecting assets, government securities, private securities and other securities from the market. The money injected is for purposely meeting the inflation target.
Due to quantitative easing, firms and corporates have an excess of money supply on their hands and accounts. This makes business lending easier. Long term bond rates are expected to stay low due to the clear message that the monetary policy sends out to the public. Due to the fact that a lot of other variables control the stock market in the U.S, quantitative easing has resulted in job instability.
The gross domestic product (GDP) of a nation is the primary means of determining the economic standing. It is one of the key indicators used in setting the interest rates. GDP can be calculated basically by the income approach, whereby the total earnings of firms, corporates, government and individuals are added together for a quarterly or yearly period, or by expenditure approach by adding total consumption, investment and government spending as well as net exports. Most economists prefer dealing with the expenditure approach as it gives what was actually spent not assumed as an earning.
To find the aggregate demand, the demand for all individual goods and services produced by an economy are added together. Thus the AD- aggregate demand curve represents the total quantity of all goods and services demanded by the economy at different price levels. In relation to the AD curve, a change in the price level implies that many prices are changing, as prices change, income also changes. The supply of money is fixed due to quantitative easing. But as the price level rises, firms require more money in order to handle transactions. This increased demand for a fixed supply of money consequently tips the interest rate to also rise. With the increase in the interest rate, expenditure will decrease.
The aggregate supply- AS is an actual depiction of the quantity of real GDP that is supplied by the economy at different price levels. The aggregate supply curve is defined in terms of price level that is an increase in the price level will increase the price that producers are likely to get for their products and results in more output. However, an increase in the price will eventually lead to increases in input prices as well, this will cause producers to cut back.
A leading indicator in the economy is one that is expected to change before the rest of the economy changes. It basically dictates changes in the market. The leading indicator can be significantly used in implementing changes concerning the interest rates. The GNP is used in leading U.S, UK as well as the Eurozone to give a preview of what is going to happen before the change in the market actually transpires.
The Commodity Research Bureau (CRB) analyses the world’s leading commodities, monetary and future research of financial standings. The CRB is directly related to the U.S inflation. As the economy changes, the CRB introduce adjustments that enable them to provide flexible and trusted service. West Texas Intermediate (WTI) is a light grade of crude oil that is used as a benchmark in oil pricing. It has a low sulfur content and a relatively low density compared to Brent crude oil.