The Economy, Monetary Policy, and Monopolies

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The Economy, Monetary Policy, and Monopolies

A Robinson

Principles of Economics 100

May 26, 2012

Analyze the current economic situation in the U.S. as compared to five (5) years ago. Include interest rates, inflation, and unemployment in your analysis. The United States is the most technologically advance country in the world, not to mention the largest. Everywhere you look or read the headlines are saying that the U.S. economy is in a great shape. Is that really the case? There has been a spike in the number of houses being sold; interest rates have hit rock bottom, and a record weakening in the federal budget balance. With all those things taking place within our economy, it is still not where it should be nor is it close to where it needs to be.

The unemployment rate in April of 2007 was 4.5% compared to April of 2012 at an 8.1%. Unemployment rates are high compared to five years ago, but are low compared to 2 years ago. The country has been through a lot trying to build its economic status back to where it was years ago. The unemployment rate is the number of people actively looking for a job. Unemployment is an indicator of how other factors of the economy are doing. For instance, if it looks like the economy is attenuation, and the unemployment rate is increasing, then you know businesses aren’t confident enough to start hiring again, and vice versa. When setting monetary policy, the Federal Reserve uses unemployment to determine the health of the economy.

Monetary Policy is a series of actions that the Federal Reserve uses to affect the level of inflation and Real GDP. If monetary policy stimulates aggregate demand enough to push labor and capital markets beyond their long-run capacities, wages and prices will begin to rise at faster rates. The whole idea behind raising or lowering interest rates is to affect the demand for goods and services. Policy affects real interest rates, which affects demand and output, employment, and inflation. In April 2007, the inflation rate was 2.57% compared to 2.30% in April 2012. If a monetary policy is persistent at trying to keep short-term real rates low, will eventually lead to higher nominal interest rates and higher inflation. This will not resort to any permanent increases in the growth of output or decreases in unemployment. Output and employment cannot be set by monetary policy in the long run, even though there is a trade-off between higher inflation and lower unemployment in the short run, that same trade off disappears in the long run.

Propose two (2) strategies that the federal government could implement that would encourage people to spend more money in order to create employment opportunities. This country is built on the American dream, freedom, and education. Everywhere you turn someone is always saying how important an education is and how it will take you in life. That maybe so, but not everyone can afford a quality education and those of us that cannot have to take out loans, federal, personal, etc. in order to obtain that education. So, one strategy that I propose to the federal government would be to forgive student loan debt. Hundreds of thousands of students graduate each year from college with hundreds of thousands of dollars in debt before they even start their career. They have to find a job and immediately start paying back those loans. Think about it, if those debts were forgiven, those hundreds of thousands of dollars could be put back into the economy thus stimulating it. That would lead to more employment opportunities, companies would feel confident enough to start hiring again.

The other strategy that I would propose to help rebuild the economy and create jobs for millions of Americans would be Healthcare. There are so many Americans who cannot afford healthcare, insurance, and medicine that they just go without and hope and...
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