GM545- Business Economics
Professor McLean
February 13, 2012
YOU DECIDE SOLUTION The economy is needs a little help from the government but they also need to have strong and prominent monetary policies. For this situation, I agree with Allison Tanney, the President should work with Congress to increase government spending and the Federal Reserve should increase the money the money supply. By doing one or the other, you are only doing half the job. If government spending were to increase it would help to stimulate the economy. In addition, lowering interest rate would encourage firms to increase investment. This would also aid increase consumption because now people with mortgages and debt can purchase homes, consolidate debt or even keep from homes being foreclosed.
Raymond Burke stated that the President should lower interest rates further to help business but the President does not control short-term interest rates, it depends on what the Federal Reserve wants to do. Therefore his option would not work. The US economy is coming out of the most severe recession since the Great Depression and the economy needs as much support as it can possibly get. This will involve both monetary policies and fiscal policies.
The economy needs direct stimulus from the government since monetary policy can only provide incentives to firms and households to spend, not actually increase spending. If the government decides to increase spending that will directly contribute towards increasing aggregate demand. Higher aggregate demand in turn will help increase our real GDP. In addition, the government should lower taxes to stimulate spending, therefore pushing economy out of recession.
To summarize what we need right now is a policy that helps kick-start growth in aggregate demand and help pull the economy out of the recession. It is not something that can be done with one single policy and needs a multifaceted approach with every agency doing its bit.
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