Quickest Way to Re-inflate Economy - Term Paper Example

«Quickest way to re-inflate economy» In the face of economic slowdown, the central banks all over the world are finding ways to rejuvenate the economy and stage a quick recovery from the losses inflicted due to the global economic slowdown. The central banks including the Federal Reserve have adopted aggressive credit lending policies in order to inject additional liquidity in the economy and stimulate the economic growth. The huge credit offered in for business investments led to the expansion of the economies in the last decade which was eroded due to the global financial crisis. In order to manage the crisis, the central banks across the world had little funds in their treasury to re-stabilize the economy. The central banks embraced huge amount of bad debts while the monetary reserves of the central banks hit the lowest values. Due to the slowdown of the business environment in the economies like the UK, US, Ireland, Canada, Austria, Greece, etc. the amount of goods and services produced by the business decreased. This led to the large number of job cuts and the unemployment level grew beyond the normal limits. The lowering of employment reached around 10% which meant that the income level of the households lowered. The situation led to the liquidity crunch in the economies and there was little money to be spent for purchase of goods and service. The decrease in demand in the economy due to the loss of purchasing power further slowed down the business activities and the investments. Due to this reasons, the economies plunged downwards with the cyclic decline of demand as well as the business growth. The central banks had to find ways in order to fuel the economic growth of their country. This led to shift of the focus of the central banks towards the fiscal policies in order to stage an economic turnaround. The governments and the central banks have looked for ways that would offer the quickest mode of re-inflating the economy and stage an economic recovery. This resulted in the discussion of the economic fundamentals and the parameters that are responsible for the economic growth of the country. It has to be kept in mind that the economic growth could be obtained in the fastest mode through the generation of demand. The demand driven economies have experienced rapid growth rates in the past decades which include the US, UK, China, India, Brazil, Kazakhstan, etc. Thus the Federal Reserve and other central banks all over the world focused on regenerating the economic demands. It has to be noted that the economic demand refers to the demands of the consumers in the domestic markets. The gross domestic product of a nation is a function of the consumer and the market demands. The consumer demands contribute to around 66% of the gross domestic product of a country. This is due to the fact that the demands of the consumers for goods and services are viewed as useful opportunities by the business for investment and growth. On the basis of the market demands, the business and the production houses increase their investment and the supply of goods and services in the industry. These goods and services are consumed by the customers which results in the earnings of revenues and profits which are again re-invested for achieving sustainable business. This model of cyclic trend of demand and supply has been used by several banks to re-inflate the economies. The effect of unemployment rate of around 10% has been addressed by taking fiscal measures of reducing the tax rates. The lowering of tax rates have allowed the household to retain relatively larger sums of money which meant that the government contributed to increase in monetary flow in the hands of the holds by lowering the tax rates. Although the treasury compromised on additional earnings from the public, the added money in the hands of the consumers led to the rise of demand for the goods and services. The business houses responded to the market demands and started to raise their production levels in order to meet the economic demands. This reduced the unemployment rates. The increase in the number of jobs led to the rise in income level of the consumers and the flow of liquidity in the economy increased (WSJ-OPED 1). In this way, the governments and the central banks have been able to re-inflate the economy in a quick manner and recover the pace of economic growth. The lowering of tax rates have, therefore, proved to be an effective strategy for quickly re-inflating the economy. Work Cited WSJ-OPED. Quickest Way to Re-inflate Economy. 2013. Web. 30 December. 2013. . Read More