This essay intends to facilitate an explanation of the current economic situation in the United States of America defined by excessive unemployment and no inflation. The researcher describes the unemployment rate of 2011, that stood at 8.8 percent and compares it to pressures in the economy. …
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This essay not only describes current economic situation in the United States that was explored as an example. The current economic situation in the United States of America marred by high unemployment and low inflation can ideally be explained with the help of the Philips Curve. As per A W Philips, there existed a relationship between the levels of unemployment and consequently the rate of change in money wages and the rate of change in prices and hence inflation. To put it in simple words, as per the Philips Curve, historically speaking, their lies an inverse relationship between Demand Pull Inflation and the rate of unemployment. The researcher also provides the reader with some steps, that would not only increase the aggregate demand but would also check the expanding unemployment rate. The Salient Factors that have impacts on the US economy rates, such as The Labor Market, Product Markets and Other Factor Markets are explored in details. The researcher od this essay also discusses and presents some alternate scenarios that say an unemployment rate of 8.8 percent and an inflation rate of 10 percent will not warrant such measures. In such scenario that was discussed, the pragmatic approach on the part of the government will be to pursue a restrained fiscal and monetary policy to contract the supply of money in the markets. In conclusion, it is stated that in the current scenario showing high unemployment and low inflation, it is advisable that the government pursues an expansionary fiscal and monetary policy.
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