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Contradictory Effects of Monetary and Fiscal Policies on the Economy of Usa

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Contradictory Effects of Monetary and Fiscal Policies on the Economy of Usa
CONTENT

1. INTRODUCTION 3

2.MONETARY AND FISCAL POLICIES OF THE USA 3

3.REASONS FOR CONTRADICTORY CONSEQUENCES 5

4.IMPACT ON THE BANKING SYSTEM 7

5.IMPACT ON CITIBANK 8

6.RECOMMENDATIONS 9

7.CONSEQUENCES 10

8.REFERENCES 11 EXECUTIVE SUMMARY

The global economic downturn, the sub-prime mortgage fiasco, investment bank collapses, falling shares and home prices, and tight credit pushed the United States into a recession by end 2007.In response to which the Federal Reserve, Treasury, and Securities and Exchange Commission responded with unprecedented , monetary policy expansion, fiscal stimulus and financial institutional bailouts intended to create employment, promote investments and combat slumping consumer spending. However these policies have had useful as well as contradictory results in their outcomes. The following report discusses various monetary and fiscal policies, reasons for the contradictory consequences ,impact of these policies on the banking sector for e.g. how banks started hoarding and investing money in securities instead of lending out to businesses, and how Citibank in particular has been impacted. The report concludes with a number of recommendations to address the challenges of debt management, dismal unemployment rate and the crisis of the banking sector.

1 INTRODUCTION

The global economic downturn, the sub-prime mortgage fiasco, investment bank collapses, falling shares and home prices, and tight credit pushed the United States into a recession by end 2007.(National Bureau of Economic Research ).

Figure 1 United States GDP Growth Source : CIA World Book Fact Sheet

As shown in figure 1,the GDP rate started to deteriorate in 2007 ,and by Jan 2009 it had slumped to -6.40 .Unemployment rate also reached a staggering 10% thus forcing Government and the central banks Federal Reserve to respond with



References: Federal Reserve Available at : http://www.federalreserve.gov/bankinforeg/default.htm (accessed on 2 June 2010) NewYork Times Available at : http://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is-in-a-liquidity-trap/ (Accessed on 2 June 2010) (Accessed on 2 June 2010) YAHOO FINANCE Available at : http://finance.yahoo.com/news/Treasury-gets-62-billion-from-apf-2653586322.html?x=0&.v=4 (Accessed on 2 June 2010) CIA THE WORLD BOOK FACT Available at : https://www.cia.gov/library/publications/the-world-factbook/geos/us.html (Accessed on 2 June 2010) UNITED STATES DEPARTMENT OF LABOUR Available at : http://www.bls.gov/data/ (Accessed on 2 June 2010)

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