In all economies, policy makers have a significant role in the regulation of activities relating to macroeconomics with a general aim of maintaining and sustaining economic stability (Blanchflower, 2008). A stable economy is, therefore, the primary goal for all economic policy makers. This is essential in enhancing the growth as well as social welfare of the economy. The US economy is currently facing a number of tribulations (Karanassou & Sala, 2010). This has further been augmented by the fact that this economy is yet to heal fully from the recently concluded global financial crisis in 2009 (Daugeliene, 2012). The crisis adversely affected all sectors of the US economy and almost resulted into a full economic depression. At present, record high levels of unemployment are a major macroeconomic issue the US is facing. Even with slight improvements where jobs have been created, unemployment rates are still high.
Even as global trade and growth are projected to improve at moderate paces within the next two years, the current macroeconomic situation in the US is worrying. Recent research shows that the economy of the United States is still underperforming owing to the 2009 recession (Karanassou & Sala, 2010). Although inflation rates have averaged the set Fed’s 2% in the last decade, the real economy performance is deteriorating in comparison to past years. Economists associate this poor performance to the significant shifts in economic policies away from systems that worked well in the earlier years. Regulatory policy, fiscal policy and monetary policy all became more interventionist, less predictable and more discretionary in the few years leading to the 2009 financial crisis (Blanchflower, 2008). These policies have for the most part remained that way. Without a change of policies, these problems are likely to recur in the near future. The situation in Europe serves as a good example to explain this. The current sovereign debt crisis in Europe may as well portray the picture in the future of US economy (Daugeliene, 2012).
However, a change in policy, both monetary and fiscal, may help the economic situation of the US to gain pace. With such, unemployment will be lowered, and the economic slack be reduced as the inflation level rises closer to the target (OECD, 2013). Significant monetary and fiscal policy changes will ensure the economic stability is restored and maintained. Given the current macroeconomic situation in the US, the most suitable strategies to combat the issues will be expansionary monetary policies, expansionary fiscal policy or both measures combined (Blanchflower, 2008).
The current levels of unemployment are inherently cyclical. Therefore, it is appropriate to implement expansionary monetary and fiscal policies. Expansionary fiscal measures suggested include taxation, government spending and transfer payment implementation. The expenditure of the government on critical areas like healthcare and infrastructure must be increased. Taxation should be reduced to increase the disposable income of the household. This will ultimately increase consumption. Aggregate demand will as a result, increase to desired levels (Xun et al., 2009). In addition, the issue of unemployment within the US economy can be dealt with using expansionary monetary policy (Karanassou & Sala, 2010). Initially, the Fed should reduce interest rates to make borrowing less costly. With lower interest rate, investments will increase due to increased borrowing. For financial institutions to offer more lending facilities, the reserve requirement should be reduced. With such measures, the money supply in the economy will be increased significantly. Taking into consideration that the US economy is yet to recover from the recession experienced in 2009, the Fed should increase the circulation of money through open market operations participation (OECD, 2013).
References
Blanchflower, D. (2008). Inflation, expectations and monetary policy. Bank Of England
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Daugeliene, R. (2012). HYPOTHETICAL EVOLVENT OF MACROECONOMIC
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INITIATIVES FOR MAINTENANCE OF FINANCIAL STABILITY. European Integration Studies, (6), 111-120. doi:10.5755/j01.eis.0.6.1792
GENERAL ASSESSMENT OF THE MACROECONOMIC SITUATION. (2013). OECD
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Karanassou, M., & Sala, H. (2010). The US inflation–unemployment trade-off revisited:
New evidence for policy-making. Journal Of Policy Modeling, 32(6), 758-777.
XUN, Z., GUIHUAN, Z., WEI, S., SHANGYING, X., XIAOGUANG, Y., KIN KEUNG, L., &
SHOU-YANG, W. (2009). AN INTEGRATED DECISION SUPPORT
FRAMEWORK FOR MACROECONOMIC POLICY MAKING BASED ON EARLY WARNING THEORIES. International Journal Of Information Technology & Decision Making, 8(2), 335-359.
