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Macroeconomics -- Review of Age-Old Economic Concepts through the Eyes of Current Events in the Newspapers of Today
It has been a unique privilege to embark upon the study of economics during this period in our nation's economic history. One might be tempted to say this is a strange statement, at first. Would it not be better to begin to study economics during a boom period, such as the nation enjoyed during the 1990's? But one must disagree. The most interesting things about today's economy are the many contradictory aspects of its current, halting and painful economic recovery from a recent recession.
The Federal Reserve System and Recent Fiscal Policy
When the economy first began to sour, one of the first things the Federal Reserve chairman, Allan Greenspan, did was to lower interest rates. Lowering interest rates means that it is not in the consumer's interest to save money, because banks give very little interest on loans. However, all is not bad for consumers in a state of lowered interest rates. When interest rates are low, and they were at an historic low for America during the recession of the first part of the 21st century, consumers can and should use the opportunity to borrow money from banks to make large purchases, such as cars, or to buy a home or to make improvements to their home.
The lack of incentive to save when interest rates are low does not extend merely to such large purchases, however. The main...
This encourages businesses to produce more goods to meet increased consumer demand, and to hire more workers to meet such increased consumer demand and spending.
Unemployment and Business Cycles
If unemployment were so easy to remedy, simply by lowering or raising interest rates, the business cycle would not be as nearly difficult to manage as it is, however. Unemployment can be affected by many factors. For instance, the recent economic downturn caused unemployment to escalate mainly in the white-collar sector of educated professionals, circumventing current economic wisdom that better education means a better job. Thus unemployment can affect certain sectors of the economy more than others. Also, more and more businesses are taking advantage of cheaper labor costs overseas. Thus, even if consumer demand increases, this does not mean that employment, particularly employment in all sectors of the economy at all times will increase.
Deflation, Inflation, and Monetary Policy
Another concern of the Federal Reserve was that the U.S. economy might experience deflation, if the recession hit the United States economy particularly hard. What could be so bad about lower prices, you might ask? But although lower prices sound…
Macroeconomics Government borrowing is too high and interest rates are too low in many countries; fiscal stimulus does not work and cheap money leads only to inflation. Explain and discuss the various caveats of this macroeconomic problem and what policy measures will you suggest and Why if you are hired as a Junior Policy Advisor in an Advisory Board of Economists in one such country including Canada? Use economic theory, policy,
This is problematic, because it allows government waste and inefficiency to increase, which this makes it more difficult to: fire or layoff non-essential employees. As a result, there has been a concentrated effort to eliminate this power, in order to improve the state's ability to adapt to shifts in the economy. (Weitzman) However, many of the public employee unions and liberal Democrats have been fighting this law. The reason why,
Macroeconomics The AD-AS model explains how full employment can be reached from a situation of deep recession, assuming no fiscal policy stimulus. The underlying assumption of this theory is that when the economy improves, that this will have an impact on employment. The model therefore assumes a pre-globalization world where increases in aggregate supply on the part of companies in the U.S. will actually be made by U.S. workers. The thesis
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Macroeconomics In this case, there are a number of monetary policy prescriptions that apply, all of them expansionary. In terms of open market operations, the Fed should buy Treasuries. This will pump money into the banking system, providing greater means for investment. This will provide the groundwork for economic growth, in particular it will signal that the Federal Reserve is committed to restoring economic growth and halting the growth in unemployment.