Fiscal & Monetary Policy & Economic Fluctuations Essay Examples & Outline
Fiscal & Monetary Policy & Economic Fluctuations
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Fiscal and Monetary Policy and Economic Fluctuations
Various economic big academics are arguing on whether the progress of the economy is sluggish owing to too much stimulus from the government. The other reason for the stands is the fact that the rate of economic growth has ended being slower than anticipated even prior to the recession. The above arguments could be built on false or faulty foundations. The economic situation in America is different from any of the 100 major and systemic financial crises that the united states of America has experienced in the past two centuries. The truth of the matter is that contrary to the common belief the state of the United States economy is even better now than it was during the recessions (Allen, 2009).
Compared to the inflation rates in the past sine significant financial crises it is evident that the peak to trough inflation after being adjusted for per capita income is about 9 percent. In the past, the economy has taken 6.7 years to recover to the peak that it was at prior to the financial crises. The current position or outlook of the United States economy is yet to reach the 6.7 years after the beginning of the crisis (Garson, 2013).
Another indicator of the fact that the economy is not as gloomy as people make it looks is that it has not had a double dip in towards the trough. This means that the economy is still performing albeit on a slight and sluggish pace. In the current position and outlook of the state of the economy, the economy has had a single dip of 5 per cent per capita income. This inflation rate has just affected the economy once. The economy has been able to reach the pre-crisis point in six years (Allen, 2009). The interest rates for the past four years have been low since the government wanted to encourage the citizens to borrow. The year 2014 will experience increasing interest rates. The government has been able to use its monetary policy to stimulate growth to the levels mentioned in this paper.
The government can increase the interest rates to counter the possibility of having too much money in the economy. The rates implemented will be ranging up to 3.6% towards the end of this year. The rates for 30-year mortgages will climb to 5 percent or 5.5 percent. However, in as much as the government is implementing an expansionary fiscal policy, the rates are still located at a position whereby they can be said to be ridiculously low. The rate of inflation in the year 2014 will remain at a low point of 2 percent.
The rate of economic growth will pick slowly. This means that the price pressures on commodities will last. The prices of the commodities will not increase due to the international competitions. The other aspect that will lead to the continued inflation is that fact that the production capacities of the nation are yet to be fully exploited. In fact, inflation is still increasing since the focus on the consumer price index of 2014 will manifest a hike of around1-.8 percent (Ashbee, 2010). This is a slight hike from the consumer price index hike manifested in the transition of the past year. With the drop in fuel process and slight hikes on the food commodities, the chances of the actual inflation rate reaching the projected levels are also slim. There are minimal changes in inflation. This aspect makes price pressures to work at the least possible point. The projected rate of 2 per cent in inflation is a mere representation of the worst-case scenario for the year.
On the unemployment issues, the government is constantly working hard to ensure that the people have more jobs at their disposal; in fact, all the manipulation of the taxes and interest rates has the main or principal goal of ensuring that the rate of unemployment reduces by a significant margin (Garson, 2013). In the current year, the rate of job creation efforts by the government and the private sector has been on a low. The government was only capable of creating jobs that were inadequate in the reduction of the unemployment rates.
The increase in business spending, housing renaissance and export gains are going to ensure that the state of the economy in the United States is better positioned in the current moment than it were five years ago. The strong economy will have an important role in the determination of the number of people that will be employed. It should be in a position of supporting the net monthly hiring rates. This sis possible since, in the last 8 months, in the year 2013, the number of jobs created has been able to reach 200000, which is the number of jobs that are needed to sustain the monthly hiring rate. The economy is promising since the rate of unemployment has been able to drop to 6.6 per cent from the common 7 percent.
The weak nature of the employment now is from some of the special factors such as a medical care and the weather. The two factors mentioned above have been pointed out as the most possible cause of the less than optimal attainment of the levels of employment that was initially projected (Allen, 2009). The government has reduced its hiring rates in significant ways is also an influencing factor to the low gains in employment. The reduction in unemployment means that the working class of Americans can afford the commodities that are in the market. This also means that the spending will stimulate growth such that the economy will be on its way to recovery (Ashbee, 2010).
Five years ago, the optimism that is evident in the current situation was absent and in its place, people had widespread fears that the economy was going to plunge into worse recessions. The indicators used by the government in planning were not promising. The government tried to come up with measures meant to save the economy from plunging further into a recession. The government used various fiscal and monetary policy measures to salvage the economy from the failure (Garson, 2013).
The weakening of the American economy was at the center of the minds of the Americans in 2009. There were massive lay off both in the private and public sectors. Major companies went into bankruptcy periods. There were salary freezes and the economy was speaking stagnating. Failure of businesses and the subsequent layoff led to the development of the massive unemployment rates that were only similar to the great depression period. The government was operating at massive deficits. At the end of the year 2009, the government projected that it will be operating at 1.5 trillion dollars deficit in the coming year. The government engaged in measures that hoped to pull the country out of recession. In February 2009, the president signed a stimulus package of 787 billion USD.
The plan was to increase the employment opportunities in the nation since this was the main issue that the American had to handle that far (Ashbee, 2010). However, despite the move to offer the economic stimulus programs, the job creation ability of the economy proved to be an elusive task for the government for a good part of the year. By the month of October, the rate of unemployment was at 10.2 percent. The rate of unemployment was at all-time high in the past 26 years. The use of a broader perspective of measuring the rate of unemployment indicated that the rate of unemployment was even higher at 17.5 per cent. The broader way of looking at the rate of unemployment considers the parameters of the underemployed, unemployed and discouraged members of the workforce. By December 2009, the rate of unemployment had dipped by 0.2 percent. However, this percentage represented 11000 jobs. This was a considerable reduction given that the number of jobs lost in January the same year was 741000.
The government needed to keep the economy running. Therefore, it offered incentives and tax holidays in that year. The government gave credit to owners of old fuel inefficient vehicles for the replacement with better ones that were more fuel-efficient. The aim of the incentives in this program is to stimulate spending and a month since the introduction of the program, the spending in car sales had gone up by 11 per cent. The home buyers that were first timers also received incentives in the form of tax credits (Allen, 2009). The government also unemployment benefits to the people that had been out of work for long. More consideration was accorded to the people that lived in states with employment rates that were in excess of 8.5 percent.
Allen, R. E. (2009). Financial crises and recession in the global economy. Cheltenham, UK: Edward Elgar.
Ashbee, E. (2010). The us economy today. Manchester: Manchester University Press.
Garson, B. (2013). Down the up escalator. New York: Doubleday.