You Decide - Assignment Example

Recommendation on Inflation and Unemployment Recession is a domino effect problem, meaning that it always leads to other troubles in the economy. After an analysis of the case and the recommendations made by the panel of experts, the following instructions were made in order to help to reduce the unemployment and inflation rates. Lee’s recommendation on reducing government spending and increasing taxes is a valid recommendation, since it will help in reducing the budget deficit being faced.

Fiscal policy is focused on influencing the aggregate demand side in an economy; therefore, the government should focus on reducing spending and in turn increase the taxation rate (Epstein, 2007). This will help to ease the inflationary pressure in the economy, which will reduce aggregate demand. I also agree with Tanney’s recommendation about increasing interest rates and raising the Federal Reserve requirements, since it will help in reducing borrowing rates. This policy will make it more attractive for investors to save their money, since the interest rates are high, which reduce disposable income (Epstein, 2007).

In the same case, I disagree with Lopez’s proposition that the government should leave interest rates alone and focus on Federal Reserve requirements. In my opinion, the two factors go together in reducing inflation. I also disagree with Burke’s recommendation that the government should lower interest rates, since it will have a negative effect on the inflation being witnessed. Finally, I would make a recommendation the government should introduce some form of wage control policies, since a sharp growth in wages causes increased inflation (Krugman and Wells, 2009).

In this case, the government should focus on wage control which will ensure that the inflation rate is capped. ReferencesEpstein, G. (2007). Central Banks, Inflation Targeting and employment creation. International Labor Organization. Krugman, P., and Wells, R. (2009). Macroeconomics (2nd ed.). New York: Worth Publishers.