Current macroeconomic situation in the U.S
Macroeconomic factors define those economic factors that affect the economy at a larger scale. As per previous research analysis it’s been established that the U.S economy faces an economic downturn every four to six years (US Economic Outlook). As per the article ‘US Economic Outlook for 2014’, the current bull market is presently driving in its fourth year. Despite the fact that the markets are flourishing in this economic year, an average American is not. The major economic cavity of unemployment that poses a huge dilemma to every American still remains persistently high along with the household debt. Moreover the Gross domestic product (GDP) is basically dreary. Housing sector may have presented a glimpse of hope; nonetheless even that sector is unstable.
The Congressional Budget Office (CBO) anticipates the U.S. economy in 2014 to stay waning and redundancy levels to be almost 8%. CBO also states that both actual and potential real GDP will reach a 2.25% annual gains (US Economic Outlook). After the emergence of financial crisis in 2008, the U.S. national debt mounted at $9.2 trillion. However, according to the reports published by the White House this figure will monstrously reached an astonishing figure of $20.0 trillion at termination of this decade. This sums up to approximately 140% of current U.S GDP. Business investment rose, notably equipment and intellectual property products. According to an article, ‘U.S. Economy at a Glance’, the Federal government spending was amplified, mostly national defense spending along with a notable increase in the exports, comprising of particularly industrial supplies and materials. It also highlights the fact that the Business spending increased in equipment and intellectual property rights whereas investments in inventory decreased in the year 2014. The inflation rate in the United States was recorded at 1.70 percent in October of 2014 and the calculated averaged inflation rate is 3.32 Percent from 1914 until 2014 (United States Inflation Rate).
Appropriate fiscal policies and monetary policies
After the emergence of financial crisis, its been several years that U.S Government bodies are constantly struggling to drive and implement such monetary and fiscal policies which will facilitate in rapid economic growth as well as help them reduce the unemployment levels along with keeping the inflation under control. In order to facilitate this, government should use large-scale asset procurements and forward direction concerning the forthcoming path of the federal funds rate to put plunging pressure on longer-term interest rates (MONETARY POLICY REPORT). While keeping the long-term interest rates at lower levels the Government will ensure that the investment levels in the economy is flourishing generating employment opportunity and also fueling up the economic development. By keeping the interest rates in check the Government can ensure that the cost of borrowing remains low for the business investors hence investors can be encouraged to invest.
As per the fiscal policies, Government should employ expansionary fiscal policy. It should reduce the level of taxes in the economy and increase government spending in such a way that it encourages workers as well as the business to work and produce more. Government can allow tax breaks for labor-intensive industries encouraging them to produce more, hence hire more. Also a increase in the government spending will enhance the economic growth, adding to GDP. This will also result in an increase the production levels in the economy leading to an average increase in the household incomes and also reducing the unemployment levels. Furthermore, the central bank supporting the expansionary monetary policy can purchase government bonds leading to an increment in the money supply, basically creating money. This encourages economic growth in a country. However, officials need to keep in mind the fact that too many injections in the economy in form of high government spending and investments, can result in alarming increase in the levels of inflation. Hence a balanced policy at both side monetary as well as fiscal needs to implement to achieve its goals.
Works Cited
MONETARY POLICY REPORT. (2014, February 1). Retrieved December 5, 2014, http://www.federalreserve.gov/monetarypolicy/files/20140211_mprfullreport.pdf
US Economic Outlook for 2014. (2014, September 1). Retrieved December 5, 2014, from http://www.useconomicoutlook2014.com
U.S. Economy at a Glance: Perspective from the BEA Accounts. (2014, January 1). Retrieved December 5, 2014, from http://www.bea.gov/newsreleases/glance.htm
United States Inflation Rate 1914-2014. (n.d.). Retrieved December 5, 2014, from http://www.tradingeconomics.com/united-states/inflation-cpi
