Political and Economic Analysis

Marketing Application 2

DIRECTIONS:Read the article below. Then answer the questions that follow.

Despite their jitters, consumers are on track to increase their spending at an annual rate of about

3.5 percent in the third quarter. Second, companies may not be hiring in droves, but they are

adding to their payrolls and going ahead with capital-spending projects. Business investment in

new equipment accounted for more than a third of the growth in real gross domestic product

in the second quarter. Lastly, the Fed sounded a bit more upbeat about the economy after its

Sept. 21 meeting than it did in August. As expected, policymakers hiked the federal funds rate

by a quarter-point, to 1.75%. In its announcement, the Fed said the economy "appears to have

regained some traction" and that labor markets have improved modestly, while inflation has

eased. Uncertainty has been the hallmark of this recovery. Over the past three years, demand

has been buffeted by a host of unknowns, from terrorism to corporate scandals to war. One

area where consumers feel no jitters is housing. Americans still see home ownership as one of

the best investments around. Low interest rates also suggest that worries about consumer debt

levels are overblown. What the economy needs most are the conditions in which businesses and

consumers feel more secure about making the investment and spending decisions that will drive

this recovery into 2005.

(Source: From BusinessWeek, October 4, 2004, "What's Everyone So Rattled About?" by James C.

Cooper and Kathleen Madigan)

1. Which goals of an economy are addressed in this article? Explain your answer.

2. How are consumer spending and business investments related to growth in the gross

domestic product?

3. Analysts predicted that the Fed was going to continue to increase the federal funds by

another quarter-point in the following year. Why would the Federal Reserve Board do so?

4. What factors suggest that the United States was in a period of economic recovery when the

article was written?

5. Why do you think home ownership was considered one of the best investments around?