Hence, it is understandable why the federal government maintains its GDP at 3 percent. In the case involving the country being in a stage of high unemployment, zero interest rates, inflation at 2 percent per annum and a GDP of less than 2 percent, it is necessary to incorporate economic policies that will maintain the country in a thriving state. These policies involve the fiscal policy and the monetary policy. Fiscal policy involves the utilization of taxation and government expenditure to change the economy. Hence, the main tools used in invoking fiscal policies in the economy are expenditure and taxation (Kopcke, Tootell & Triest, 2006). Monetary policy involves the control of money supply in the economy. This duty is usually performed by monetary authorities such as the Federal Reserve. This policy usually involves promotion of escalation and stability of an economy by targeting interest rates (Fender, 2012).
The monetary policies implemented revolved around increasing the rate of money supply in the American economy. One of the policies implemented was the reduction of interest rates by the Federal Reserve. Interest rates for federal funds were lowered from 6.5 percent to 1.0 percent. This was adapted in order to lessen the effects of the technology bubble and the 9/11 Terrorist attacks and the risk of deflation. The changes in the rates of federal funds influenced other market interest rates which, consequently, affected savings and investments (Foster & Magdoff, 2009). Moreover, during economic downturns, the Federal Reserve adapts expansionary monetary policies. These policies provide firms with the inducement to expand and employ more workers due to the reduction of the federal finances rate. Furthermore, the policy provides consumers with a reason to increase their spending. Hence, by lowering the rate to 1.0 percent as well as the high unemployment rates, the authority adapted quantitative easing. Quantitative easing involved the purchase of financial assets that included Treasury and mortgage-backed securities in order to lessen the continuing interest rates thus increasing the supply of money (Soros, 2008).
Explain the concepts of supply and demand.
Describe the concept of macroeconomic equilibrium.
Discuss how aggregate demand and aggregate supply determine equilibrium price and output in the short-run and long-run.
Describe the concepts and measurement of gross domestic product, unemployment, and inflation.
Explain what is meant by business cycles and economic growth and describe the factors that contribute to each.
Discuss the multiplier concept, how it is computed, its qualifications, and its limitations.
Describe and illustrate the concepts, tools, and implementation of fiscal policy.
Demonstrate understanding of macroeconomics through the discussion of contemporary economic issues.
- Keynesian Economics research papers discusses macroeconomics theory in light of Keynes ideas. Order a research paper on Keynesian Economics from Paper Masters.
USA economy is one of the largest economies in the world. The gross domestic product is estimated to be fifteen trillion dollars. It amounts to a quarter of the world’s gross domestic product. It has a powerful level of output hence one of the wealthiest nations in the world. Per capita income is about forty eight thousand, four hundred dollars. Currently, USA is the largest trading nation globally. The major trading partners are Mexico, Canada and China. The economy is mixed and it tries to maintain stability and growth. The economy is mostly made of services and manufactures widely (Maler, 2012).
An interesting feature of the economy is how the private sector has freedom. It holds many economic decisions, which determine what the economy will produce. This has been made possible by less government involvement in business. Business regulations are minimal and it has largely expanded the private sectors. There are about thirty million small businesses and about thirty percent of millionaires in the world come from this nation. One major contributing factor is advanced technology, which has been brought by inventions and science (Maler, 2012).
Despite the performance of USA economy, there are concerns about unemployment rate. The republicans and Democrats are concerned about the creation of jobs. It is gradually becoming slower. The Republicans are said to sabotage the economy, as a way of overcoming President Obama in the coming elections. US unemployment rate is about eight percent of the whole population. Compared to some countries, this is a minimal rate. However, the citizens feel the government needs to reduce rate as much as possible. They are not making enough efforts making job creation slow (Maler, 2012).
President Obama agrees and emphasizes that the current situation of the economy is not performing well. This is because small businesses are lacking finances and other areas of the economy need attention. The budget needs more finances to avoid retrenching teachers and police officers. Homeowners and constructors are usually left without finances after financial crisis. The president is concerned about the Republicans judgment and says they do not have ideas of helping the economy recover. The republican candidate said the private sector is performing well and the president is wrong about his statement (Maler, 2012).
The corporate is doing well and companies are trying to add more jobs. These two areas are not enough to conclude that private sector is doing well. The president said there are other areas of the economy, which require to be looked into. The president has a duty to get ideas of improving the economy. Republican candidate seems to take advantage of the situation and show the people President Obama is incapable of presidency. Maintaining a stable economy is a great challenge, especially if there is a global crisis. This is why the president told the Republicans to assist in giving ideas instead of making criticisms (Maler, 2012).
The USA economy issues are characterized by politics. The Republicans seem determined to defeat President Obama in his re-election. This is the most interesting part of this article. Politics manipulate even the economy to win elections. The economy is the most sensitive thing in the well-being of a country. This is why the Republicans are using it to embarrass the president. In the past financial crisis, the republicans have always been supportive about the monetary policy. Generally, the dollar is still one of the stable currencies in the exchange market. The government is planning to implement some strategies to assist in improving the status quo of the economy (Maler, 2012).
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Discusses the impact to large-scale users, as well as individual consumers, how deregulation will affect the utility companies themselves in terms of profitability, and the impact of deregulation in commodities trading.
If the country has a budget deficit and carries a large debt, then it signifies that the country possesses a high debt to GDP ratio. The negative effect of a high debt to GDP ratio relies on the impact of fiscal policies in the economy. This is because an increase in the ratio is determined by government spending. The impact associated with a higher debt to GDP ratio can also be related to the impact of monetary policies in the economy. This is mainly because a high debt to GDCP ratio has a considerable impact on the interest rates. Therefore, the implications of a high debt to GDP ratio involve interest rate repercussions, increases in tax and enhanced cuts on spending (Frumkin, 2006). Regarding interest rates, the ratio will increase the interest rates of treasury bonds and indicate a higher risk. Regarding tax increases, the government will be required to increase taxes and reduce spending in order to gather finances to repay the debts.
The debt to GDP ratio indicates an economy’s health. It refers to the measure of the federal debt of the country in relation with the gross domestic product of the country. The comparison between the country’s debts to what the country produces reveals the country’s ability to repay the debt. The economic indicator gives a notion of the country’s ability to create future payments on what it owes. If the country were not able to repay the debt, then it would default leading to pandemonium in the household and international markets. A low debt to GDP ratio portrays large production of products and services as well as significant profits by an economy. This indicates that such an economy is able enough to repay its debts. Governments particularly aim for low debt to GDP ratios and have the ability to support themselves against risks involved by increasing debt since their economies possess a high GDP and profit margin. The inverse, a high debt to GDP ratio indicates portrays low production and a low profit margin, which indicates the inability of the economy to repay debt and default (Frumkin, 2006).
The effect of the ratio on the proposals will have an effect on the fiscal polices proposed. This is because there will be an increase in the rates of tax on income. By increasing the tax rates as a method of fiscal policy, the small enterprises and households will not be able to acquire funding from banks since the tax rates will also affect the banks, which will in turn increase their lending rates resulting from the federal banks’ directive. This will lead to unemployment because the enterprises will either lay off their workers or retain the ones they have without considering employment of other workers. The monetary policies employed will also be affected because of the high risk of interest rates on the treasury bonds. Since the government will seek to raise extensive finance to allow for the purchase of bonds, it will have to lower its expenditure in order to cater for the financing of high interest rates for the bondholders. This leads to underdevelopment of the economy resulting from the under financing of public amenities such as infrastructure that are important for the development of the economy in terms of increase in GDP.
– Nowadays it is the main meaningful and very instable question for many skilled (experienced) politicians and economists who can not answer this critical question directly, without doubts and misunderstandings that is why the rest of the publi...