Economic Analysis
Name
Instititution
The Bible prohibits the lending of money to another party and levying interest on the amount of
money that has been lent out.This is is seen from the book of Exodus (Open Bible, 2022) as well
as Deutronomy,Proverbs,Psalms,Leviticus,Deuteronomy and Mathew which shows that the
Bible strictly prohibiits the lending of amounts for the sake of mnaking a return through interest.
The macro issue chosen is interest rates, which relate to the lending rate used by commercial
banks to lend to corporations, governments, and individuals. It may also refer to the money
gained by the principle and deposited in a bank savings account. The spread is defined as the
difference in interest rates between the amounts lent out by commercial banks and the amounts
paid for fixed deposits inside the banks (Jamil & Shubiri, 2017). Low interest rates indicate that
money is more readily available in the economy, and so there may be more spending on private
consumption, which may improve business earnings.
The interest rate also affects inflation with specific emphasis on the American market. There has
been increasing inflation to within the year 2021 in which the consumer price inflation rose to
5.4% in June. This surpassed the expectations by the economists which shows that inflation may
have been extreme. This is compared to inflation in Britain was 2.5% in June which was higher
than the forecasts by the economists also showing that inflation may have been extreme in
Britain in the month of June 2021 as well.
There was a situation where the post covid recovery in the year 2021 was occasioned by inflation
in the western nations especially with the durable goods and commodities depicting the steady
rise in the price of cars by 22% and a rise in the cost of fuel by 27%.
This further suggests that the previous expectations on economic recovery were surpassed in
both America. In America the congressional budget office had predicted growth in America to be
3.7% to which It doubled it to 7.4% with the bank of England having revised the growth in GDP
to 1.5 percentage points due to the exponential growth experienced post Covid 19 pandemic for
comparison purposes. The growth in GDP which was not expected has brought about
unprecedented levels of inflation with the prices of non-energy and non-food commodities
expected to be stable. The inflationary trends in consumer goods with specific emphasis on oil as
well as the effect of inflation on interest rates in the United States of America, Britain and the
rest of the world.
The consequences of inflation on financial asset markets, which postulates that price increases in
equities, stocks, bonds, homes, and even cryptocurrencies are based on the premise that interest
rates would remain low for an extended period of time. That premise makes sense only if central
banks do not feel compelled to boost interest rates in order to combat inflation. If prices rise too
steadily, the financial structure erected on years of low inflation would crumble.
My choice of this topic is informed by the fact that it attempts to explain the relationship
between interest rate, inflation and GDP. This is fundamental in explaining the increased levels
of inflation in the western world especially in the United States of America where there was a
spike in inflation to an extent where the forecasts were exceeded in the month of June 2021.
References
Marketplace. (2021). Big Tech companies saw growth accelerate amid COVID. Big Tech
companies saw growth accelerate amid COVID. Retrieved from
https://www.marketplace.org/2021/04/28/big-tech-companies-saw-growth-accelerate-
amid-covid/
Vollrath & Jones. (2013). INTRODUCTION TO ECONOMIC GROWTH. INTRODUCTION TO
ECONOMIC GROWTH.
Ganti & Kelly. (2021). Multiplier Effect. Multiplier Effect.
Hall. (2021). How Do Interest Rates Affect the Stock Market? How Do Interest Rates Affect the
Stock Market?
