The Fiscal and Monetary Policy and Economic Fluctuations

The Fiscal and Monetary Policy and Economic Fluctuations

The economic situation the United States faces at the moment is better than it was five years ago in 2010. The economy is steadily growing and is able to do so through the Federal Reserve which has lowered interest rates over the past five years. For example the conventional mortgage interest rate in March of 2010 was 4.97 and now in February of 2015 it is 3.80. It has steadily dropped over time allowing more consumers to purchase home loans at a better rate which in turn puts money back into the economy. As interest rates fall more people will make investments in financial markets.

The Consumer Price Index is used to measure the changes in the prices consumers face. By definition it is “a price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer.”(O’Sullivan, 2014) According to the Consumer Price Index in January of 2010 it was at 216.687. Since then it has move to 233.707 in January of 2015. According to these numbers it has increased a total of 7.85 percent over the past five years. The goods and services that the CPI uses to calculate inflation consists of eight major groups that has more than 200 categories within. These eight groups with examples are listed below.

Food and Beverages: meat, milk, beer, wine, snacks, etc.

Housing; rent of primary residence, owners’ equivalent rent, fuel, oil, etc.

Apparel: clothing like pants, shirts, sweaters, etc.

Transportation: vehicles, airline fares, gasoline, etc.

Medical Care: hospital services, drugs, medical supplies, glasses, etc.

Recreation: TV, pets, movies, pets, etc.

Education and Communication: college costs, telephone services, software, postage, etc.

Other: smoking products, haircuts and other personal services.

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