U.S. Economy: Monetary Policy, Unemployment & Monopolies

Introduction to 2012 Economic Indicators

The benchmark interest rate stood at 0.25 percent in mid-2012, compared to 0.2500 percent registered in January 2011 (Trading Economics, 2012). Meanwhile, annual inflation remained unchanged at 1.7 percent in June 2012. Inflation, here, refers to a general rise in prices measured against a standard level of purchasing power. The Consumer Price Index (CPI) and the GDP deflator are the most common measures of inflation. The CPI measures consumer prices, whereas the GDP deflator measures inflation across the entire domestic economy. The Consumer Price Index for urban consumers remained unchanged in June 2012, on a seasonally adjusted basis.

The twelve months preceding June 2012 registered an all-items index increase of more than 1.7 percent before seasonal adjustments. A decline in the energy index offset increases in the food index and the all-items index less food and energy. The energy index fell by 1.4 percent, and the gasoline index declined for the third consecutive month. Other energy indexes remained mixed. The food index rose 0.2 percent in June. The index for all items less food and energy also rose 0.2 percent in June 2012, marking the fourth consecutive such increase. The index for used cars and trucks remained unchanged following a series of prior increases, while the index for airline fares declined in June. Indexes for both medical care and apparel rose in June, with medical care registering its largest increase since 2010 (Trading Economics, 2012).

Nonfarm payrolls rose by 163,000 in July 2012. According to the U.S. Bureau of Labor Statistics, the unemployment rate stood at 8.3 percent. In July 2012, the number of unemployed persons averaged 12.8 million, indicating that much remained to be done to curb spiraling unemployment. The unemployment rate among Hispanics was 10.3 percent in June, though it edged down in July. Unemployment rates by group in July were as follows: adult men, 7.7 percent; adult women, 7.5 percent; teenagers, 23.8 percent; whites, 7.4 percent; and Black Americans, 14.1 percent. These figures showed little or no change compared to previous months. The unemployment rate for Asians was 6.2 percent in June.

Unemployment Trends and Demographics

In July, 5.2 million people had remained jobless for 27 weeks or more, comprising 40.7 percent of the total unemployed. Involuntary part-time workers numbered 8.2 million in July — people whose hours had been cut back or who were unable to find full-time employment (Bureau of Labor Statistics, 2012).

To create employment opportunities, the government can employ monetary tools or fiscal policies. One monetary approach involves increasing the money supply, which can then be lent to the economy at very low interest rates, making borrowing cheap. When this money circulates in the economy, it stimulates growth. Care must be taken, however, not to generate inflation in the process. Well-crafted fiscal policies can also help reduce unemployment. Fiscal policy revolves around how the government taxes and spends its revenues.

The federal government can slow the economy by increasing taxes, which reduces consumers' disposable income. Those revenues can instead be redirected toward job creation projects that employ a maximum number of Americans, or invested in infrastructure projects where employment opportunities can be generated. Beyond direct government interventions, trade policy can also be used to create job opportunities. Import and export taxes and subsidies can increase employment in certain industries; however, they can also lead to inefficiency and economic distortion that may have harmful effects on gross national product (GNP). Such strategies can ultimately result in fewer total jobs, and great care must therefore be taken before they are implemented.

Government Policy Tools for Reducing Unemployment

In 1974, the United States Department of Justice's Antitrust Division filed a lawsuit against AT&T due to the company's monopolistic tendencies, which threatened to drive competitors out of the market. The case was finalized in 1983. AT&T had been using monopoly profits to subsidize the costs of its network, contravening United States antitrust laws that prohibit unfair competition — specifically, any form of collusion including price fixing, bid rigging, or market division. Had the federal government failed to intervene, national broadcast television networks such as ABC, NBC, CBS, and PBS, and radio networks including ABC Radio, Mutual, and NPR, would still have been relying on AT&T Long Lines' infrastructure of terrestrial microwave relay and coaxial cable to deliver programming to local stations. This would have meant continued poor-quality video and audio and higher transmission costs, with no emergence of pioneers in satellite distribution technology such as RCA Astro Electronics and Western Union (Frum, 2000).

Monopolies are harmful to an economy because of their tendency to engage in price fixing, which is illegal. Monopolies fix prices without regard to demand, particularly when dealing in goods and services that have inelastic demand. They also supply inferior products, knowing that consumers have few alternatives. Furthermore, monopolies are detrimental to the economy because manufacturers have little incentive to innovate or improve their offerings (Amadeo, 2012).

There are many methods of identifying customers who can receive a discount for a product or service. Musicians use social networking services to reward loyal fans by allowing them to listen to unreleased songs at no cost. Companies that market their products on social networking sites can also reward individuals who provide constructive suggestions about changes the company should consider adopting.