Current Macroeconomic Situation in the U.S - Research Paper Example

Current macroeconomic situations in US Contents Introduction ………………………………………………………………………. Page 2 Statistics of inflation unemployment rates …………………………………………Page 2 Factors causing economic recession ………………………………………………. Page3 Ways of mitigating economic recession ………………………………………….. Page4 Conclusion ………………………………………………………………………… Page5 References ………………………………………………………………………… Page6 Current macroeconomic situation in us Introduction The 2007/08 economic downturn culminated in major socioeconomic problems all over the world. The United States was affected in a similar way like other countries globally. The statistics from the article History of Inflation in America 2003/2013 shows a 4% increase in 2008. The employment rate was at about 10% according to United States Unemployment Report (2013). Though the inflation rates are falling gradually, the level of unemployment still remains high. There are however several factors that have been attributed to the increased economic hitches in the United States. The increased administration cost has been blamed for the challenge. The ministry of defense has for instance been said to spend billions of dollars annually putting more pressure on the economy.. The country is still grappling with issues of increased mortgage loans which have denied citizens an opportunity to own houses. However, the gross domestic product (GDP) has remained fairly stable despite changes in the economy. To control the current economic effects, both monetary and fiscal policies have to be used. The following discussion focuses on the current macroeconomic status of the United States as well as objective way to mitigate the effects. Statistics of inflation and unemployment rates The current economic effects being experienced in the United States are a culmination of the 2007/2008 economic recession. The latter led to increased cost of living in the United States. Unemployment rates rose to an average of 10% (United States Unemployment Rates 2012). This occurred due to the increased cost of operations in industries. With the need to cut down on expenses, retrenchments became the order of the day. As the prices of goods increased, the purchasing power of citizens was affected. Owing a mortgage therefore became a big challenge especially amongst the middle income earners. To compound matters further, the inflation was highest in the 2008-2009 (Historical Inflation Rates for United States of America 2013). It is during this time that the cost of fuel was also highest. Being the main source energy used in transportation of raw materials, the increased cost of crude oil was partly to blame to economic hitches. Factors causing economic recession There were various factors to be blamed for the economic downturn in the United States. Firstly, the provision of loans with low interest rates encouraged most people to borrow. There was increased supply of money within the system which adversely affected the dollar, and increasing inflation. At the same time the cost of oil was on the increase due to the increased conflict in the oil producing countries in Asia. Currently however, the rate of inflation is falling and the living standards of the people are improving. This has been achieved for various steps that the government has taken to control the economy. However, this should not be interpreted to mean that the problem of unemployment has been fully solved. It is still high despite the fact that the government has promised to create employment to have the challenge addressed. Ways of addressing economic challenges To address the issue of macroeconomic challenges in United States, monetary and fiscal policies shall be used. The former refers to the process through which the monetary authority may control the supply of money within the economy. This is done with a view to achieve economic growth and stability. Two main monetary policies will be used to address the issues of unemployment and inflation. The expansionary and contractionary monetary policies are used in the mitigation of unemployment and inflation respectively. In the former category, the government is encouraged to increase its spending. This allows money to be in circulation, in the hands of the people. This may encourage growth of businesses and creation of employment. However, the increased supply of money may also lead to increased inflation. For that matter, the contractionary monetary policy is used. Under this, the government controls the supply of money within the economy. It does this through the Federal Open Market Committee (FOMC). It is a government body which controls issues of interest rates depending on the nature of economy. This is one of the policies that has been used to bring the inflation rate to about 1.7 % in 2012 compared to about 4% in 2008 (Historical Inflation Rates for United States of America 2012). Apart from monetary policies, fiscal policies may be used as well. This mostly refers to the government’s revenue collection and spending which latter affect the economy. For instance, increased inflation would force the government to apply the contractionary fiscal policies. Under this, the spending of the government would be under check. This is what currently the government of the United States is contending with. For instance, there is a debate on whether the funding for the ministry of defense should be reduced. The country has been spending billions of dollars for the purpose of fighting terrorism activities in various parts of the world. However, this has continued to affect the economy prompting several players to intervene. On the other hand however, the unemployment rates could also be addressed though economic stimulus programs under fiscal policies. In this situation, the government increases its spending in a view to spur growth of businesses and creation of employment. Conclusion In conclusion, the economic recession of 2007/08 culminated in a number of macroeconomic problems. The United States was grappling with issues of increased inflation and unemployment. The two stood at approximately 4% and 10% respectively. However, both the monetary policies and fiscal policies are being used to address unemployment and increased inflation. As a result, the country has witnessed a fall in inflation rates, through the unemployment still remains a major challenge. Bibliography/References Historical Inflation Rates for United States of America. Retrieved from http://www.rateinflation.com/inflation-rate/usa-historical-inflation-rate?form=usair on 18/02/2013 United states Unemployment rates, retrieved from http://www.tradingeconomics.com/united-states/unemployment-rate on 18/02/2013 Read More