What is the current macroeconomic situation in the U.S. (e.g. is the U.S. economy currently concerned about unemployment, inflation, recession, etc.) What fiscal policies and monetary policies would be appropriate at this time - Essay Example

Content Introduction……………………………………………………………….…………..2 U.S Macroeconomic Situation…………………………………………………..…2 &3 Fiscal and Monetary Policies………………………………………………………….4 Conclusion…………………………………………………………………………….5 References…………………………………………………………………………….

5 Question; What is the "current macroeconomic situation" in the U.S. (e.g. is the U.S. economy currently concerned about unemployment, inflation, recession, etc.)? What fiscal policies and monetary policies would be appropriate at this time? Introduction Macroeconomics forms the branch of economics dealing with behavior, organization, presentation and decision making of the entire economy. Macro economists are well versed with accumulated key economic indicators that include but not restricted to unemployment rates, inflation, recession and investment among others. U.S Current Macroeconomic Situation U.

S current macroeconomic situation can be determined by the fact that consumer price index for the entire urban consumers never changed for instance in November last year after reducing by about 0.1 % in October. The index for instance of every item less food and energy increased by 0.2 % in November after rising 0.1% back in October. The problem comes in when more money is printed leading to inflation and even worse when the money is not properly budgeted for (Rugaber, 2012). According to Mühleisen, Towe and Cardarelli (2004), the government needs to take full charge through making rules that control levels of inflation.

Inflation has really destabilized the government efforts to curb unemployment, this is because the government needs to print more money but this has already been jeopardized by inflation. Monetary policy entail controlling of the amount of money circulating with the sole goal of making the business cycle stable thereby curbing problems of inflation and employment and also support economic development. This can be done by employing these tools; open market operations (the most employed of all the tools), discount rate and reserve requirements.

This is normally ensured through printing additional or less paper money i.e. controlling rate of money creation through employment of fractional-reserve banking. In the U.S this obligation is left for the Federal Reserve System (the Fed). The USA has got a stagnant growth; this has been stirred up by the increasing unemployment rates. In December 2011 for instance, Nonfarm payroll employment increased by 200,000 whereas the unemployment rate continued a downward tendency at 8.5 %. It is worth noting that job gains were realized in the transportation and warehousing, manufacturing, retail trade, health care and mining (Rugaber, 2012).

When it comes to real domestic growth product which is the amount produced of goods and services generated by property and labor in the U.S, recorded an annual increase rate of 1.8 % in the 3rd quarter of 2011( this was in the period between the 2nd and 3rd quarter). This was as per the third estimate released by the bureau of economic analysis. As for the 2nd quarter, there was an increase of 1.3 % (Rugaber, 2012). As for the FOMC concerning federal reserves, preference to maintain the target range for the federal funds at 0 to ¼ % while anticipating on the economic status that include low rates of resource use and subdued viewpoint for inflation over the average run.

This has the likelihood of warranting low degree for the federal funds charges at least through mid-2013 (Mühleisen, Towe and Cardarelli, 2004). Rugaber, (2012) argues that the current cause of economic crisis and recession is the massive increase of the issuance of the subprime mortgages and the collateralized debt obligations (CDOs). The issuance of subprime mortgages increased drastically from the year 2005 while that of prime mortgages decreased. Banks heavily loaned people to buy mortgages hopeful that the cost of the houses were to increase with time thus more profits, which never happened and most of the people defaulted to the banks thus many Americans lost their retirement that was centered on these mortgage securities.

It is the federal governments that mislead the public by encouraging them to purchase the mortgage securities without conducting a prior research to establish the underlying risks. Fiscal and Monetary Policies According to Mühleisen, Towe and Cardarelli (2004), Fiscal policy is the utilization of government income collection and expenditure in controlling the economy whereas monetary policy is the process through which financial power of a state guides the supply of money continually targeting the interest rate with the intention of endorsing economic development and stability.

There are various fiscal policies that would be appropriate at such times. These include but not limited to taxation verses labor productivity. The control over taxes can have an effect on the strength with which people work and their complete competence and productivity. Secondly, taxation relative to business investment decisions is another policy. Lower rates of taxation encourages arise in business fixed capital investment disbursement. Lastly, taxation against the pattern of demand is the other policy that could be employed.

Fluctuation of indirect taxes does have a great impact on the pattern of demand of goods and services. On the other hand, monetary policy would include; ensuring low unemployment through creating more jobs and ensuring that fed prints more money that is closely monitored to curd the rate of inflation. There should be expansionary policy through which the interest rate is lowered to ease credit that encourages expansion of the business to curb the unemployment issue. Conclusion To conclude, the US government should reaffirm the economic situation through contacting the macro economists to give them the relevant and valid advice on the current macroeconomic situation and how to control it.

Inflation should be greatly avoided as this derails the efforts of the government to meet its economic goals (Mühleisen, Towe and Cardarelli, 2004). References Rugaber, C. S. (2012, June 4). US economic outlook darkens after jobs report. San Francisco Chronicles. pp 06-04. Mühleisen, M., Towe, C. M., & Cardarelli, R. (2004). U.S. fiscal policies and priorities for long- run sustainability. Washington, DC: International Monetary Fund.