Assignment 2: Micro Analysis Project

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Micro Analysis Project 2 ECON545 Situation C Cassandra J. Crawford Introduction: Cousin Edgar, who is always coming up with great ideas, has decided to open four new gas stations and believe this is a great profitable business opportunity. His assumption for this new venture is that American has accepted the gas hikes and the demand for gas will continue: the demand for gasoline “is the biggest end-use category, as consumers purchased 172.2 billion gallons of gasoline spending over $400 billion dollars” (Devol, 2012), and he will sell convenience store items as well. Cousin Edgar needs a loan to get his business started and since I’m taking ECON545 and have read the book, “Bank Lending Signals a Strengthening Economy” and studied macroeconomic factors, he has solicited my advice on the financing of his new…show more content…
Many economists believe “that a rapid stock of the nation’s money causes inflation” (pg.169). The rate of inflation can affect borrowing power for a new business owner as, “the rate of inflation expected by the borrower and the lender will be influence by various interest rates” (pg. 169). When inflation is high, many lenders interest rate increase to compensate for the impact inflation has on their business and the decrease in purchasing power of money that has to be paid back in the future. Since, the FED set the interest rate in which the banks borrow from, Edgars’ ability to borrow enough money or establish a line of credit to start his business will be affected by inflation, interest rate and financial policies. However, in some situations, an unanticipated inflation can benefit Edgar, as this type of situation whenever inflation rates are underestimated for the life of a loan, the bank loses and Edgar will
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