Answer to Question #307476 in Macroeconomics for geoffroy

Question

How would you describe the relation among interest rate (specify which one), GDP, unemployment rate, value of assets (common stocks, bonds, real estate etc.), firms‘ investment (you can add whatever variable you find relevant)?

Answer 1

If interest rates are high the economic growth could be negatively affected. During the phase of expansion, GDP increases because of lower interest rates. Okun's law states that a percentage increase in unemployment causes a 2% fall in GDP, which implies a negative relationship. Firm's investment is inversely related to interest rates, which are the cost of borrowing and reward to lending. Also an increase in firm's investment directly increases the current level of GDP, since physical capital is produced and sold. Value of assets is the most that one firm or individual would pay to own the assets and its affected by firm's investment.