Monetary Policy Wages, Markets and Income Essay Example | Topics and Well Written Essays - 500 words

Monetary Policy Wages, Markets and Income - Essay Example As asserted by Woodruff, the real interest rate is defined as the interest rate minus the rate of inflation in the economy. Viewing it in another way, interest rate, specifically the nominal interest rate, is the real interest rate plus the inflation. The nominal interest rate is what is actually applied to my mortgage or loan application. With this, it becomes evident that an increase in inflation brings about an increase in interest rate. As such, should I perceive that inflation is relatively during a particular period, then I may defer my decision to apply for a loan or mortgage until inflation has been curbed as expected by economic agencies. This would generally lessen my cost of borrowing given the resulting lower interest rate. Relative to inflation, Woodruff also noted that leading inflation indicators should be watched. These key reports include those on unemployment rate, employment cost index (ECI), GDP, consumer price index (CPI) and producer price index (PPI). The employment reports of the Department of Labor are deemed as the "harbinger of inflation." This is because of the perceived inverse relation between inflation and unemployment rate, meaning with a lower unemployment rate-an uptick in inflation is expected.