Article Review
Article: Unfamiliar Ways Forward, The Economist, Feb 20, 2016
Question 1:
Answer:
In spite of the job growth and favorable performance of the housing sector in the US the growth has been sluggish. In fact growth seems to have stagnated at a low level as indicated from the last quarter of 2015 . Activities in both the manufacturing and the non-manufacturing sector have slowed down as indicated by the Institute of Supply Management (ISM) indices for the manufacturing and non-manufacturing sector performance. Both the indices have some down. Profits in the corporate sector have come down. Taking bank loans have become difficult for the big businesses as banks are stricter on their lending norms. The financial condition is not at all heartening as indicated by the falling stock market indices which have been dragged down mainly by bank stocks.
Question 2
What has been the ultimate goal of all the central banks since the start of the last recession in 2008?
Answer:
The goal of the central banks has been to keep the inflation rate at 2% level. But the inflation rate is persistently below 2% level.
Question 3: The problem with Fed not achieving the economic goal
Answer:
The central banks have time and again pumped in money into the economy through the quantitative easing policy of the government, so much so that the assets have reached around 20-25% of GDP. Still the targeted inflation figure could not be achieved. The author contends that the monetary expansion was not matched by appropriate fiscal policies that could increase productivity. The unemployment level has come down due to the monetary easing policies but productivity did not improve. Thus growth was stalled. Since productivity remained unchanged the wage level was stagnant. If wages does not increase government’s tax revenue also does not expand and the government debts keep on increasing . Low wages keeps the price level low with low spending. Thus the targeted inflation rate cannot be achieved only through monetary expansions. Long term comprehensive economic policies should be taken set the economy rolling on the growth path with accelerated pace without the aid of the central bank’s easy money policy. Thus the government should take long-term policy decisions instead of expecting short-term results from monetary policy decisions. Structural changes are required and unproductive expenditures and doles should be cut down to reduce the indebtedness and putting a pressure on the central bank funds.
Question 4:
What ere the two parts of those optios?
Answer:
The article presents the contention that there are two sides of policy options that should complement each other . The monetary expansion should be strong enough to produce significant dent on the economy. But monetary policy alone cannot make the effects on the economy long lasting. It should be matched with appropriate fiscal policy measures to make the objectives of such policies fruitful both in the short term and in the long term. To ensure a sustained long term impact of the economic policies, monetary policy should be complemented with fiscal measures. Thus injecting money into the economy can produce results in terms of sustained growth only when productivity increases with improved technology and efficient resource usage.
Works Cited
The Economist. (2016, February 20). Unfamiliar Ways Forward. The Economist. Retrieved from http://www.economist.com/news/briefing/21693205-policymakers-rich-economies-need-consider-some-radical-approaches-tackling-next
