1-How Was The Economy When Obama Took Office? (Unemployment Rate, Inflation, and GDP)
When Obama took office, the economy of the United States of America was in a great depression, which had not been experienced since the Great Depression of the 1930s. The economy was in a bad shape, and each sector was being faced with various problems.
The levels of unemployment had gone up, and the Obamas’ administration was afraid that if they did nothing then, the problem would be much bigger than they thought. The unemployment rates had escalated to levels of even 9%. The situation was worse because the levels of inflation in the economy had risen. The mortgage owners had issued the borrowers with very unfavorable terms and conditions that most of the families could not afford to meet (Havemann, 2009). The levels of unemployment were very high, which made the United Sates to lose nearly two million jobs. The unemployment rate shot up to 7.2%, with an increase from the one recorded by March 2007, of 4.4%.
The levels of inflation were very high in the United States economy. The government had to be directly involved in the process of bailing out some of the key sectors of the economy. By doing this, there was more money circulating in the economy, which hastened the levels of inflation in the economy. The government was involved into what was referred to as the individual-level analysis. The government involvement in the bailing process worsened the situation, hence leading the inflation rates to go up.
The gross domestic product (GDP), had dropped due to the low prices and the low-interest rates, which had brought up the mortgages in the market. Various export and import oriented industries suffered a lot of loss and even had to shut down their operation due to the different aspects concerning the low value of money in the economy (Marshall, 2009).
2-What Types Of School Of Thought Was Followed By The Obama Administration Classical Or Keynesian? And Why?
The Obamas administration used the Keynesian theory to try and move the economy from its recession point. The Keynesian model was attempting to focus on the internal and external factors that drive the economy towards recovery. The economy is calculated by the government and consumption multipliers. The Obamas’ administration, therefore, focused on the primary drivers that were described by the value of public expenditure, the levels of consumption in the economy, the levels of savings in the economy, the output levels, the recessions and the aggregate demand (Blinder, 2009).
The Keynesian model that the Obamas’ administration used was based on the various aspects that were taking the economy of the United States of America down. The government applied the basis of the most developed Keynesian model assumptions, such as the reduction in the interest rates as well as the increase in the government expenditure. The government applied the decrease for the benefits rates, and the tax cut was meant to increase the investment levels so as to move the economy from its recession levels (Enwall, 2013).
The government used the expansionary monetary and fiscal policies, which aim at increasing the government expenditure. The expansionary policies used included the reduction in tax, as well as increasing the government consumption.
3-What Strategy Do They Use To Tackle The Economy? And How Were The Outcomes?
There are various strategies that the Obamas’ government used to tackle the problem of the economic crisis. The government applied the various aspects such as the increase in the government’s borrowing demands, which designed to improve the fiscal sustainability, through the concentration on the long-term economic policies.
The government adopted the various strategies such as the adoption of the structural changes. The government implemented laws and regulations that touched on the innovation, hence promoting the spirit of entrepreneurship, infrastructural investment, the adoption of the green investment, and encouraging the development of the workers skills (Gokay,2009).
The government also invested in the expansion and the development of the human capital. The human labor was developed so as to enhance the economic development and advancement. The government also invested heavily in the public support, enhancing the research and innovation. The government also designed the Well-designed public-private partnerships that aim at increasing the corporation between the public and the private business sectors.
The government also introduced the Open and competitive public procurement procedures that designed to enhance the productivity of the economy. The strategies used were very effective because they moved the economy from the point of the recession to the recovery point. The effectiveness of the strategies was implied by the success of the whole sector (Blinder & Zandi, 2010).
4-What Is The Name Of The Economist Who Disagrees With The Strategy Implemented By The Obama Administration? What Are His Arguments?
Robert Lucas criticized the Obamas’ administration in the process of moving the economy from the crisis level. The economist argued that the government did not look keenly into the whole process of economic management through the application of the Keynesian model. The government did not investigate the implication of the economic impacts of the reduction of taxes and the increase in the government expenditure which leads to a boom in the economy. The boom eventually leads to a recession, which doesn’t favor the economy at the long run. The economist argued that the administration only looked at one perspective of the model, which is the implicative strategy of economic development.
5-What Was Not Considered In Romers’ Approach?
Romer's approach tries to look into the history of multipliers in the calculation of economic growth. The Obamas’ administration did not, however, look into the history if the two related variables in the economic developmental procedures. The administrators did not look into the economic history and any factors that might have led to the adoption of the Keynesian model, and its application in the calculation of the multipliers, so as to apply the tax cut and the increase in the governmental expenditure (Gregory, 2016).
The Romers approach tries to identify any factors which are key drivers of the economy, about the economic growth. The method looks into all the variables that are vital for the development of the multipliers.
6-Why Does The Author Think That Tax Cut Might Be Better Than Increasing Government Spending?
According to the author, taxing less has more advantages than increasing the government expenditure. A reduction in the taxes increases the incentives to work and invest for people. A decrease in taxes usually leads to an increase in the disposable income level.
Reduction in taxes makes businesses spend more, invest more and even have more cash on hand to spend. In situations where there is cutting the tax levels, the levels of unemployment goes down because businesses have more to spend and even employ more people. Companies find it easy for them to borrow money even from corporates because the reductions in taxes enable them to have more profits; hence, they can spend more money. The businesses have the advantage of exercising their ability to do businesses, by opening new areas in which they can operate in.
7-Why Tax Cut For New Hires? Explain The Advantages And The Disadvantages Of Such Policy?
A tax cut for new hires acts as an incentive for firms. The policy has some benefits and cons. Some of the advantages of the tax cut for new hires are that the system creates some incentives for businesses to hire new workers. The policy also advocates for the reduction of the unemployment rates to a point, where companies cannot hire any more. In most situations, the system also enables those people who have been employed to get employed, hence increasing the governmental expenditure.
The policy, however, has some disadvantages. The system encourages the firm to lay off workers, who have been working for them, for new hires, so as to get incentives. The businesses are also faced with the challenge of defining new hires about the policy requirements. The other challenge is that business cannot be able to determine the baseline of employment when it is in recession r crisis situations. The businesses are therefore left at cross lines, without the clue on what they should do on their side.
8-What is the long-run fiscal challenge in the US and how do you think government can handle that?
Various long-run financial challenges face the United States of America. These challenges include the preeminent debt-to-GDP ratios, the high number of aging population, which usually has to depend on others for survival. The government also faces the challenge of an increase in the tax levels, the increase in the cost of health care, as well as an increase in the tax levels.
The US government and economy is also faced with a long-run fiscal challenge of increased debts in the benefits, which are paid from the Social Security payroll taxes. The economy faces the challenge of depletion of such sources which acts as a threat to the fiscal policy of the state. Problems that are associated with the Pension Funds, also pose a challenge for the whole system, because the pensioners face the challenge of getting no money once they retire (Sivy, 2012).
9-What can we learn from European Value Added Tax policy?
Various lessons can be gained from the European Value Added Tax Policy. The European Value Added Tax system policy that was developed so as to tax the commodities that circulate within the European Union zone. It was a system that was meant to enhance equity in the development of the whole community.
The VAT in the European Union suggests that, when governments grow, there is also the growth of revenue, or else, the increase in the VAT leads to a growth of the states. The VAT suggests that the European Union has had large parties that have led to substantial revenue, through the application of the VAT policy. The strength of the trade unions has also seen to the success that people enjoy in the modern world. The people can have more leisure time, and hence, they can enhance development in their societies.
10- What type of fiscal policy would you suggest to the Obama Administration? Explain
There are various economic policies that can be used by the Obamas’ administration, to address the challenge of the recession in the economy.
There are two types of fiscal policies, the expansionary and the contractionary economic policies. The expansionary fiscal policy is usually used when an economy is in the state of a recession. It is a strategy that aims at stimulating the economic growth, by addressing various variables in the economy such as unemployment, and the little business cycles. It is an approach that entails the increase in the government expenditure, and a cut in the tax rates, or even the application of both. The system looks at giving the consumers the money, so as to enhance spending (Brooks, 2012).
The contractionary fiscal policy aims at slowing down the economic growth. It is a system that aims at increasing the taxes as well as cutting down the level of spending. The system is used to control inflationary pressures in the economy.
Obamas administration should, therefore, use the expansionary fiscal policy so as to move the economy out of recession, by cutting down taxes, and increasing governmental expenditure.
References
Blinder, S.A., and Zandi, M., (2010). How the Great Recession Was Brought to an End, Princeton University. Retrieved from https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf
Brooks, C. (2012), What is Fiscal Policy? Business News Daily. Retrieved from http://www.businessnewsdaily.com/3484-fiscal-policy.htmlElwell, K. C., (2013), Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy. Congressional Research Service. April 18, 2013 (https://www.fas.org/sgp/crs/misc/R41332.pdf).
Gokay, B., (2009). The 2008 World Economic Crisis: Global Shifts and Faultiness. Global Research News. Retrieved from http://www.globalresearch.ca/the-2008-world-economic-crisis-global-shifts-and-faultlines/12283
Gregory, N. M. (2016), Questions about Fiscal Policy: Implications from the Financial Crisis of 2008-2009, Report Information from ProQuest, April 09 2016
Havemann, J., (2009). The Financial Crisis of 2008: Year in Review 2008. Britannica. Retrieved from http://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264
Marshall. (2009), the financial crisis in the US: Key Events, Causes, and Responses. Business and Transport Section: House of Commons Library, Research Paper 09/34
Sivy, M. (2012), The Six Daunting Financial Problems Facing America. Time Economy & Policy, Retrieved from http://business.time.com/2012/08/21/the-six-daunting-financial-problems-facing-america/
