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Although the US is the leading economic country in the world, it is faced with several woes especially since the 2008 recession. Unemployment has been a major economic undoing for the country economic policy makers. Consumer confidence has been eroded due to unemployment and this has had a toll on business sentiments in the country. The federal government is majorly focused on accessing the high unemployment rate as well as the increasing national debt. For example, in 2011, the country had a budget deficit of about 10% of its GNP with a whopping 70% public debt of GNP. This basically implies a great pressure on finding a long-term solution for the micro-economic problems. Although most of the deficit can be attributed to the effects of the financial crisis, a weak moral structure is also to blame including an unsustainable high healthcare costs and a too small tax basis (Baily, 2012).
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It was anticipated that the US economy could grow at a faster rate, but upturns in the world have seen the US economy grow at a slower rate against a prediction by economic experts in 2011 and 2012. This has seen the growth prospects being adjusted downwards on several occasions. The slow growth rates are explained by temporary factors including natural disasters in Japan that led to production proceses, and an increase of oil prices in the international market. Others including the real estate bubble in 2008 that led to start of the recession have led to a negative impact not only on consumer spending but also a reduction in investments (Baily).
With respect to unemployment, the US labor market faces several challenges with the current unemployment rate standing at 7.5% (as at April 2013). About half of all the unemployed people have been without a job for more than half a year and this should concern the authorities.
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Fiscal Policies and Monetary Policies Would Be Appropriate At This Time
The US government has taken a myriad of measures to help prop up the economy although with little or no effect. On the fiscal front, the US government has pumped up money by way of printing new currency. This was to give its citizens more money which can be available for spending. The government argued that a rise in people’s expenditure will have a net result of boosting aggregate demand and thus increase income. This was done in the spirit of ‘Quantitative Easing’ theory which also results in increase in government spending hence boosting confidence in the long-term. Banks and private insurers were also bailed outt by the federal government and this was intended to boost confidence not only to the public but also give confidence to businesses to have faith in the US economy.
On monetary terms, the Federal Open Market Committee (FOMC) has undertaken the buying of government securities in order to lower interest rates and encourage more investments. This will result in more investments and a rise in investments will automatically increase output and thus improve in confidence levels.
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This has also been coupled by the fact that the Federal Reserve has been under pressure to reduce interest rates. This is to basically stimulate employment and stimulate US output. This is done by buying of more securities, treasury notes or engaging in long-term obligations like a 30 year long mortgage. By reducing long-term interest, the federal government will help increase the people’s purchasing power by raising their values (especially houses which are the most valuable assets to most US homes) as well as stimulating consumption and reduce savings rate.
It is argued that in this way, the monetary policy can raise an economy like that of the US against a fallout especially with Europe’s current economic crisis from spiraling and causing a global effect.
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