You Decide Exercises. The U. S. economy has fallen into a recession. It is a severe and deep recession, and one that some economic analysts say may persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years. The current unemployment rate is at 8% and is expected to rise further. The inflation rate is -2. 4 percent, meaning that overall, prices are falling. After I read all the recommendation I can conclude: * I agree with lower interest rate as Raymond Burke said because lowering interest rates should encourage consumption and investment. I do not agree with rise taxes as Kathy Lee said because that means that less money go to the economy, and as consequence there will be an increase in prices and/or cut jobs. * I do not agree with reducing government spending as Kathy Lee said because this would exacerbate the situation with more contraction in the gross domestic product. * I do not agree to leave interest rate intact as Patricia Lopez said because it would not be a stimulus to consumption or investment to the economics. I do not agree with selling bounds and raising the bank reserve as Patricia Lopez said because this action can lead to restrain lending and reducing the rate of economic growth. * I agree with buying bounds as Allison Tanney said because is putting money into circulation by paying investors who has these bonds, so the money supply increase. * I do not agree with increasing interest rate and the bank reserve requirement as Allison Tanney said because this action can lead to restrain lending and reducing the rate of economic growth.
After analyzing the entire expert’s recommendations this is my recommendation on how to proceed in these circumstances. 1. The government will need to apply expansionary fiscal policy: these involve increasing government spending, increasing transfer payment (Social Security, unemployment compensation, or welfare) or decreasing taxes. * Cutting tax makes to increase disposable income, increase consumption and increase the real DGP. * Increasing government spending and transfer payment make to increase the equilibrium real GDP. 2.
Also the government need to apply the expansionary monetary policy: these involve purchasing government bonds by the Central Bank in the open market, lowering the interest rate, lowering reserve requirement. * Purchasing government bonds increase the amount of money in the economic * By lowering reserve requirement the banks have more access to the reserve capital and consequently the banks are more available to lend money to the public. * By lower interest rate the central bank makes liquidity cheaper and more accessible to the public, so increasing the money supply
References Monetary and Fiscal Policies http://financeunleashed. blogspot. com/2007/12/monetary-and-fiscal-policies. html Definition of Expansionary Monetary Policy eHow. com http://www. ehow. com/about_5033268_definition-expansionary-monetary-policy. html#ixzz0wyLw15x7 Expansionary Monetary Policy vs. Contractionary Monetary Policy What Effects Does Monetary Policy Have? http://economics. about. com/cs/money/a/policy. htm Monetary and Fiscal Policy http://www. studyworld. com/newsite/reportessay/Science/Social%5CMonetary_and_Fiscal_Policy-63. tm Monetary and Fiscal Policy http://countrystudies. us/united-states/economy-7. htm Tools of Monetary Policy http://www. newyorkfed. org/education/fed/tools. html Fiscal Policy by David N. Weil http://www. econlib. org/library/Enc/FiscalPolicy. html Fiscal and Monetary Policy: Recession & Economic Growth. Pros and Cons http://hubpages. com/hub/Fiscal-and-Monetary-Policy-Recession–Economic-Growth-Pros-and-Cons Difference Between Monetary and Fiscal Policy http://www. economicshelp. org/blog/economics/difference-between-monetary-and-fiscal-policy/