Question

1. Until recently, the US Dollar had been appreciating. This was occurring as the growth rates of European and some Asian economies were slowing. Based on these two trends only, how would the rate of growth for the US economy change from its previous levels (provide your basis for this). What should the effect of these two factors be on interest rates, the S&P 500 index, and commodity prices (briefly provide your basis for each of these changes). DO NOT ASSUME ANY ACTIONS BY THE FEDERAL RESERVE IN FORMULATING YOUR ANSWER.

Answer 1

SOLUTION:-

* The rate of growth of United States economy will be DECREASING from the previous level because when the United States dollar will be gaining strngth, it will mean that the overall imports of the United States economy will becoming higher and it will also resulting into lower amount of export into other countries because United States dollars has grown stronger so it will be resulting into lack of growth of United States economy.

* It will mean that the overall interest rates in United States of America is going to increase due to strong currency.

* The overall commodity prices in United States of America is also going to increase because there is increase in the interest rates in United States of America and it would be leading to higher commodity prices.

* The stock market standard and poor 500 index will also have a negative impact because the overall growth rate in the economy has slowed down and interest rates are going up so these factors are living in to lack of future growth of various companies so that will be discounted into the stock price and standard and poor 500 will be going lower.

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