2. Every time we start to have fun, the government ruins it! You run a construction company where you build residential homes. For the past 3 years, demand for new homes has risen significantly, and your company tripled its size. The main driver for the rise in demand is high GDP growth. People are making good incomes, and they are demanding more houses. The positive outlook many people have about the economy makes you believe that you need to expand your business even further to another state, which requires you to open an office there and hire at least 50 people. While sitting with your family in the evening enjoying some sweets and watching TV, you heard the news reporter state the following: "The central bank has decided to raise interest rates to influence consumer spending to try to control inflation. The economy has been doing very well for 3 consecutive years, and economic growth is still accelerating, which could lead to a spike in prices." Your spouse, who was watching TV with you, seemed excited about the news because it indicated that the economy is growing, which means your business is going to grow more. Consider the following questions: What do you think? Should your spouse be excited or worried about this news? Explain why. How does an increase in interest rate affect your particular industry? And why do you think the government would do such action? Should you continue with your business expansion plan? Or wait? Why?

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter16: Creating An Environment For Growth And Prosperity

Section: Chapter Questions

Problem 12CQ

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2. Every time we start to have fun, the government ruins it!

You run a construction company where you build residential homes. For the past 3 years, demand for new homes has risen significantly, and your company tripled its size. The main driver for the rise in demand is high GDP growth. People are making good incomes, and they are demanding more houses. The positive outlook many people have about the economy makes you believe that you need to expand your business even further to another state, which requires you to open an office there and hire at least 50 people.

While sitting with your family in the evening enjoying some sweets and watching TV, you heard the news reporter state the following: "The central bank has decided to raise interest rates to influence consumer spending to try to control inflation. The economy has been doing very well for 3 consecutive years, and economic growth is still accelerating, which could lead to a spike in prices."

Your spouse, who was watching TV with you, seemed excited about the news because it indicated that the economy is growing, which means your business is going to grow more. Consider the following questions:

What do you think? Should your spouse be excited or worried about this news? Explain why.
How does an increase in interest rate affect your particular industry? And why do you think the government would do such action?
Should you continue with your business expansion plan? Or wait? Why?

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