Discussion Board Assignment 3
This week you are being asked to go to the St. Louis Federal Reserve’s FRED database.
The last part of the chapter explains that, according to the Classical model, national saving and investment must be equal. This occurs because the interest rate will adjust to bring them into balance. You are going to look at the components of that story to see how well the data supports it.
The first step is to search the data base for gross private saving. (Select the option for annual, seasonally adjusted.) Click on that link and a graph with that data will appear. Now click on EDIT GRAPH and ADD LINE. Search for Gross Government Saving and select the option for annual, seasonally adjusted. You will see this line added to the graph. Click on ADD LINE again and search for Gross Private Domestic Investment. (Do not use the Real Gross Investment.) You will have to modify the frequency of this data from quarterly to annual. Finally, click on the ADD LINE button one more time and search for Bank Prime Loan Rate. You will have to change the frequency from monthly to annually. Then click on the FORMAT button and change the axis for the Bank Prime Loan Rate from the left to the right. This will make the right side of your screen show the interest rate in terms of percentage rates. The last thing to do is to change the date range on the graph to begin with January 1960.
Take a moment to study the graph. Then based on your observations, answer one of the four questions below. Be sure to identify which question you are answering in your post.
1. Do you agree with the Classical model that national saving is equal to investment? Why or why not?
2. Do you agree that changes in investment lead to changes in the rate of interest? Why or why not?
3. Would you say that changes in saving reacts to the interest rate or causes the interest rate to change? Explain your answer.
4. What affect should a change in public saving have on interest rates? Does this data support your hypothesis? Why or why not?
It might be a good idea to read other posts before you make you own post. Try to bring a new idea that has not already been addressed by others. Also be sure to respond to at least two other posts.