Economics Indicator Paper and Graph Essay Example | Topics and Well Written Essays - 500 words

Economics Indicator Paper and Graph - Essay Example From the diagram above it is clear that the number of houses have increased from the 1940 until it reached a peak in the 1970, from the 1970 to day to the number of houses built has declined over the years. From the above diagram it is clear that interest rates have declines from 1999 until 2004 where interest rates have risen to date, interest rates are the cost of borrowing funds and therefore with the increase in interest rates means that les houses are built or the demand for houses has declined as the cost of funds increase with interest rates. Keynes emphasised the importance of the level of interest rates on investment levels, according to Keynes when interest rates were high then the level of cost of funds was high and the level of investment would be low, if interest rates declined then the level of investment would rise, therefore according to Keynes the interest rate investment relationship can be simplified in the following graph. The classical theorist also recognise the importance of interest rates in the determination of the investment levels, however classical theorist also show the importance of the interest rates as a tool used by the government to fine tune the economy of a country, the interest rates are increased to reduce money supply in the economy in order to avoid inflation. The housing industry is more at home with the classical theories, classical theorist were referred to as classical theorist because any economic theory developed after them have borrowed a leaf from them, they are also referred to as classical because of their unquestionable explanation of economics and because they brought order into economic enquiry. The construction industry in California therefore has been affected by interest rates, interest rates affect the level of investment, when the interest rates affect the investment level then they affect the supply side, further the interest rates also