Eco 561 Week 4 Learning Team Reflection

Week four has given the team the opportunity to learn about the effects credit markets has on the economy such as availability of loans from financial institutes for personal use or business use. This all affects our way of living beginning with credit the availability to borrow money, which is controlled by supply and demand. We also have a better understanding of global economics and conditions regarding trade and specialization business decisions such as improvements in communication technology and transportation, and how the foreign trade policy U.S. affects both domestic and world economic conditions such as integration of global markets.

Credit markets are vital to the economic wellbeing of any country. The amount of credit extended along with interest rates have an impact on what businesses and individuals can purchase, which keeps money flowing through the economy. Current credit markets are stricter for prospective borrowers than in recent times. Less credit is being extended, and interest rates, especially for credit cards, are higher. In a tight economy, with high uncertainty of future pay-offs, the cost of money increases, as lenders risk losing the loanable funds and aggregate demand goes down, because people have less access to funds. “Though I am convinced that modern credit banking as it has developed requires some public institutions such as the central banks, I am doubtful whether it is necessary or desirable that they (or government) should have the monopoly of the issue of all kinds of money” (Hayek, 1960, p. 520).

Holding funds and credit within a lending institution keeps economic productivity and output at a lower level. Individual borrowers may not be able to make larger purchases, which puts money into the economy, and means businesses will keep production slower to stay in line with demand. Individuals with enough money for purchases will more than likely spend money more practically, sticking to necessities as much as possible....