How would I respond to this? The Gross Domestic Product expanded 2.60 percent in

Question

How would I respond to this?

The Gross Domestic Product expanded 2.60 percent in the second quarter of 2014 and had the same occurrence over the same quarter of the previous year. In my opinion the increase of GDP is a result of tax returns. Obviously, consumers will have extra money in their pocket in the third curt because of receiving their tax money. Therefore, consumers will have an open eye for purchase products. Consequently, in preparation of this the GDP will increase because of the anticipation of meeting this supply demand.

In recent years the Federal Reserve Board has kept the federal rate to a nominal rate. For the most part, this is being used as a way to stimulate the economy. Additionally, short term interest rates are staying low in order to decrease the unemployment rate. Another reason for low interest rates could be to improve inflation which once more is to help the economy jumpstart once again.

Explanation / Answer

As discussed in the given question consistent growth in GDP could be because of increased Disposable Income of the household as a result of less taxation level and nominal interest rate . A low interest rate will increase money supply into the system and creates a demand and inreased economic activity resulting in increased Consumption level of the household and on the other hand increase inflation . Consumption level is a consituent of GDP ,So an increased Consumption level and inflation will increase the value of goods and services consumed resulting in increased GDP level

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