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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

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Gross domestic product is the total monetary value of services and goods produced within the country’s borders, within a specified time usually one year. Economic growth is the annual rate of change of the gross domestic product (Boyes & Melvin, 2012). Since 2009, the U.S…
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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
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Current Macroeconomic Situation in the United s Current Macroeconomic Situation in the United s Gross domestic productis the total monetary value of services and goods produced within the country’s borders, within a specified time usually one year. Economic growth is the annual rate of change of the gross domestic product (Boyes & Melvin, 2012). Since 2009, the U.S. economy has been experiencing positive growth, although the rate of economic growth is too slow. The GDP growth, consumption and income, are all positive, despite that they are growing at below trend rates. The housing market shows no sign of recovery. The real GDP augmented at a yearly rate of 1.5% in the second quarter of 2012. This was a decline from 2% growth rate recorded in the first quarter (Censky, 2012).
Unemployment rate is the ratio of jobless individuals to the labor force. The economy has been experiencing employment growth over the past twenty two months. In July 2012, the employment increased by 163, 000 jobs. The rate of unemployment remained basically unchanged at 8.3% as compared to previous months. Since the commencement of 2012, employment expansion has averaged 151, 000 jobs per month. Inflation rate is the general increase in price levels of services and goods. In June 2012, the rate of inflation in the U.S. was recorded at 1.7%. In June 2012, the Consumer Price Index for all metropolitan consumers was unaffected on a seasonally regulated basis. Over the last one year, all commodities index augmented 1.7% before seasonal alteration (Censky, 2012).
Expansionary fiscal policy is described as an augment in government spending and/or a cut in taxes, which causes the budget surplus to reduce or budget shortfall to increase (Boyes & Melvin, 2012). According to International Monetary Fund (2012), in 2009, the United States administration introduced an expansionary fiscal policy valued at $787 billion. This expansionary fiscal policy is referred as economic stimulus package, which is a combination of tax reductions and increase in government expenditures.
The objectives of the policy were to offer consumer relief, create jobs, increasing consumer expenditure, and increasing production. This fiscal policy played a significant role in forestalling a deeper economic recession. This expansionary fiscal policy has resulted to economic growth, although at a very slow rate (International Monetary Fund, 2012). However, this expansionary fiscal policy is proving to be unsustainable and has increased the public debt. Since the adoption of this policy, national debt has increased over the months. In July 2012, the national debt was recorded at $15.9 trillion.
The present monetary policy in U.S. is described as ultra-loose monetary policy. Through the Federal Reserve Bank, the Federal Open Market Committee recommended the adoption of this policy with an aim of achieving economic growth. The policy strives to sustain federal funds rate at exceptionally low levels up to late 2014. The objective is keeping the rate of interest for federal funds at near zero; currently, the rate is within the range of zero to 0.25%. This policy has led to an augment in values of government bonds and a reduction in interest rates (Labonte, 2012).
According to Labonte (2012), low interest rates have led to an augment in capital investment. In turn, this has led to an augment in production capacity, thus spurring growth of the economy. In the June 2012, the Federal Open Market Committee recommended the extension of the Operation Twist Program through the end of year. This extension will add extra $267 billion to the program through which the Federal Reserve Bank sells some of its intermediate-term bonds with an aim of purchasing long-term bonds. Theoretically, this action is expected to reduce the rate of interest for long-term loans. The U.S. economy should continue using expansionary monetary and fiscal policies with appropriate adjustments.
References
Censky, A. (2012). GDP Report: U.S. Economy Slowed in Second Quarter. Atlanta: CNNMoney. Retrieved from: http://money.cnn.com/2012/07/27/news/economy/us-gdp/index.htm
Boyes, W. & Melvin, M. (2012). Macroeconomics. New York: Cengage Learning.
International Monetary Fund. (2012). World Economic Outlook, April 2012: Growth Resuming, Dangers Remain. Washington: International Monetary Fund.
Labonte, M. (2012). Monetary Policy and the Federal Reserve: Current Policy and Conditions. Washington: Congressional Research Service. Read More
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