Assignment: Essay in news article analysis for financial regulation or policy implemented.
- a newspaper article that discusses a financial regulation or policy that is
Implemented (Increase in interest rates). Write an essay using the tools of economic analysis to describe and explain some plausible causes and benefit of the regulation or policy that you chose.
The news article is chosen and you can check it in the below link:
- The (main ) news article is:
- The supporting new ( updated) news article: https://www.investopedia.com/articles/investing/010616/impact-fed-interest-rate-hike.asp
- an old news article but we can use the content for the analysis:
- the assignment questions More specifically:
- A) Briefly describe the nature and characteristics of the regulation or policy that you chose.
Suggestion in brief to answer: the regulation or policy chosen is the increase in interest rates by Federal Reserve for the second time in 2018 by 0.25% (from 1.75% to 2.0%). This was as a continues increase in the interest rates since the financial crisis and will increase again.
Since the financial crises the interest rates increases from almost 0% to +2% and still the Federal Reserve intend to further increase this year.
- B) Talk about what problems existed in the market before it was implemented?
In brief the suggested answer (but you have to check if it is right or not from your research to the topic): the economy was doing very well as started to recover since the financial crises and due to many other policies. And, the inflation rate was low and expected to rise in future so the policy implemented in increasing the interest rate to avoid the consequences in future and control the inflation? Also, the unemployment rate was low.
As the loan cost is low and market was doing well, there was more demand to borrow money and hence the Federal Reserve took the action to increase the interest rates.
- C) Describe some plausible cause(s) why the government (or central bank) may want to influence the market and explain by which means it could achieve this.
In brief the suggested answer (but you have to check if it is right or not and do your analysis): the market seems to have people who have more money to spend than it is available to buy so the decision came to increase the cost of borrowing the money and balance the market?
- D) Overall, who is likely to benefit and who likely to be disadvantaged after it was implemented?
In brief the suggested answer (but you have to check if it is right or not and do your analysis): it is an overall benefit for the market and the economy.
As the investment loan cost increased due to increase in interest rates the stock market/prices has effected?
Also, the personal loan cost has increased and effected the individuals who wants to get loan for personal matters or hardship loans.
Bond yield increases?
We need to talk also about short and long term effect?
- Sources, Articles and hints suggested to analysis the given article for the above questions:
- Text book: ( importantly to relate your analysis to the course content)
Mishkin, Frederic (2016) The Economics of Money, Banking, and Financial Markets, Pearson Global edition, 11th edition
- The attached three articles.
- You are required to use information and data from reputable sources to answer the questions and complete the assignment.
- You can give your own suggestion by using the theoretical knowledge you have. You could find some sources that try to answer those questions, and then you can add your explanations or your opinions in favour of or against the sources.
- If we choose a relatively recent news articles which refer to monetary policies of central banks, the government may not have enough involvement but the policy might support or oppose the government policies indirectly. In such cases, what should we do? In such cases, you can first talk about what the central bank’s intention or motive about implementing the policy is, and in general you can talk about what the government can support the policy. In a case where the monetary policy of the central bank is clearly against the government policies, then you can explain what the government can do to respond to the policy of the central bank.
- This topic provides scope for using data. Descriptive statistics, graphs and tables with good labeling, will be sufficient.
- Marking Criteria: Your essay mark will be influenced by:
- Content: relevant to the question, sound interpretation and understanding of economic theory.
- Clarity of argument: logical thinking, clarity and coherence.
- Fit of the theoretical analysis of the government (or central bank) intervention to the real-world example of government (or central bank) intervention.
- Use of relevant diagrams to illustrate your arguments (if graphical illustrations are necessary).
- Evidence of reading outside of the textbook.
- Use of references: correct referencing format (any standard referencing format is fine) in your essay and also in the bibliography/references at the end of your essay.
- Writing style: correct grammar and spelling; no long sentences and pompous words; use of quotations, if necessary, must be prudent.