Macroeconomic Situation in the U.S.: Corrective Fiscal Essay

Excerpt from Essay :

Macroeconomic Situation in the U.S.: Corrective Fiscal and Monetary Policy

December 2007 marked the onset of the Great recession, which ended in mid-2009 but left the U.S. economy struggling through the damage wrought by its severity. Federal policy has gone a long way in the prevention of an occurrence of another recession, but growth remains too sluggish and inadequate for the full-health restoration of the economy. Vigorous and sustained fiscal and monetary support is needed if the economy is to recover and achieve the pre-depression employment level.

Save for the temporary hiring of census officials, the overall economy recorded a drastic fall in employment levels during the last half of 2009. In December 2012, the unemployment rate was reported at 8.1% - approximately 3.5 percentage points above the average rate in 2007, at the end of which the Great Recession struck (Bureau of Labor Statistics, 2014). This rate further exceeds the peak rates recorded in the wake of previous recessions experienced at the beginning of the 20th and the 21st centuries (BLS, 2014). The tabular representation below shows the unemployment rates between 2007 and 2012.

Unemployment Rates between 2007 and 2012

Jan

March

May

July

September

November

Annual

2007

4.6

4.4

4.4

4.7

4.7

4.7

4.6

2008

5.0

5.1

5.4

5.8

6.1

6.8

5.7

2009

7.8

8.7

9.4

9.5

9.8

9.9

9.1

2010

9.7

9.9

9.6

9.5

9.5

9.8

9.7

2011

9.1

9.0

9.0

9.0

9.0

8.6

9.0

2012

8.2

8.2

8.2

8.2

7.8

7.8

8.1

(Source: Bureau of Labor Statistics, 2014).

Prior to 2007, the price level was more or less sable. The depression, however, brought in its wake, rampant price instability, with the average annual rate of inflation falling to an all-time low of -0.4% in 2009, from 3.8% in 2008, as depicted in the tabular representation below.

Annual Inflation Rates from 2003 to 2012

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2.3%

2.7%

3.4%

3.2%

2.8%

3.8%

-0.4%

1.6%

3.2%

2.1%

(Source: U.S. Inflation, 2013)

The declining unemployment rates and the price stability between 2011 and 2011 are positive indicators of the U.S. policy makers' commitment to restoring the economy to the pre-depression economic levels, and steering it to full employment.

The Great Recession inflicted significant damage, especially upon the middle and low-income earning Americans. At the core of this is a fall in the aggregate demand, which is a problem that is imminently solvable through accommodative federal fiscal and monetary policy (Greenlaw, Hamilton, Hooper & Mishkin, 2013).

Fiscal policy is the use of taxes and government spending to achieve stabilization in the economy (Greenlaw, Hamilton, Hooper & Mishkin 2013). During recession, Congress should stimulate demand by i) increasing government spending, and ii) reducing taxes (inflationary fiscal policy). The former 'primes the pump' in the economy, whereas a tax reduction ensures that…

Sources Used in Document:

References

Bureau of Labor Statistics. (2014). Labor Force Statistics from the Current Population Survey. Bureau of Labor Force Statistics. Retrieved from http://data.bls.gov/timeseries/LNS14

Council for Economic Education. (2013). Fiscal and Monetary Policy Process. Council for Economic Education. Retrieved from http://www.econedlink.org/lessons/index.php?lid=352&type=student

Greenlaw, G., Hamilton, J. Hooper, P. & Mishkin, F. (2013). Crunch Time: Fiscal Crises and the Role of Monetary Policy (No w19297). National Bureau of Economic Research.

US Inflation. (2013). U.S. Inflation Rate. U.S. Inflation. Retrieved from http://usinflation.org/us-inflation-rate/

Cite This Essay:

"Macroeconomic Situation In The U S Corrective Fiscal" (2014, February 14) Retrieved May 31, 2020, from
https://www.paperdue.com/essay/macroeconomic-situation-in-the-us-corrective-182743

"Macroeconomic Situation In The U S Corrective Fiscal" 14 February 2014. Web.31 May. 2020. <
https://www.paperdue.com/essay/macroeconomic-situation-in-the-us-corrective-182743>

"Macroeconomic Situation In The U S Corrective Fiscal", 14 February 2014, Accessed.31 May. 2020,
https://www.paperdue.com/essay/macroeconomic-situation-in-the-us-corrective-182743

Advertisements