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Over the period of time, the unemployment rates in US averaged just over 5% however, during September 2011, the unemployment rate reached over 9%1 suggesting that despite measures taken by the government, unemployment level is rising.
The overall growth rate of GDP has not been encouraging as the growth during the current year has further slowed down due to depressed aggregate demand as well as higher levels of inflation. The overall forecasts for the growth rates during the current year are less than 4% thus suggesting that the economy may further slow down as the growth rates fall and inflation increases.
In order to deal with the problem, US government has undertaken a restricted expansionary policy under which fiscal stimulus has been provided to the economy. At the start of the crisis, Bush administration has introduced a tax cut fiscal expansion program to stimulate the economy. After that a further fiscal expansion package was introduced to save the financial system from collapse during 2009 and a further tax cut and unemployment fund extension package was introduced during 2010. (The New York Times, 2011). These attempts suggest that the US government undertook fiscal expansion in order to stimulate the economy and provide the necessary launching pad for the economy to pick up. However, despite such measures, economy has not responded and as such the overall growth rates remained depressed.
The monetary policy also remained expansionary in nature wherein FED reduced it policy rate to almost zero. Reduction in discount rate critically reduced the overall interest rates within the economy thus allowing the economy to get stimulus. Low interest rates were also meant to encourage consumer spending on credit so that the overall aggregate demand could be increased. Apart from this, FED also continued with the policy of quantitative easing under which fictitious money was created to increase the
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