The Economy, Monetary Policy and Monopolies
The American economy has undergone massive changes over the last five years. The economy is just recovering from the recent recession that peaked in mid 2008. In 2007, there was the looming economic depression; there was a lot of uncertainty about the future. Many businesses were in shambles; in fact some went bankrupt like the insurance giant AIG while others closed down. In 2007, there were very many concerns that the economy would collapse. The GDP growth was at negative -0.7%. This mean the economic growth was negatively affected by the imminent depression. There were job growth concerns where many people lost their jobs. Over 1.2 million people lost their jobs. However, their nominal wage growth increased by 3.4%. The rate of inflation was relatively low, at 2.6%. This was not a major concern at that time. These poor economic conditions negatively impacted on the main components of the national economy. Investments fell by 2%, consumption fell by 1.2% while residential construction reduced by 12%. At the end of 2007, the unemployment rate was up to 6.3%. The U.S dollar also depreciated in value against world’s major currencies like the pound and Canadian Dollar. Interest rates in the banks went up and borrowing reduced drastically due to the high cost of borrowing.
In 2012, the global recession is well past its peak. However, the effects of the recession can still be felt. Currently, the rate of unemployment as at January 2012 was 8.3%, higher than it was in 2007. The most recent inflation rate, in January 2012, was 2.9%. This was mainly due to increase in gas prices. The interest rates of the Federal Reserve currently stand at 0.25%, a big improvement from 2007 when it stood at 4.75%. Generally, the economic situation has improved, accompanied by legislations in the congress, for example, the health care bill and the jobs creation policy. These new laws will help improve the well being of Americans, mostly those from the middle and low income classes.
The Federal Government can use various strategies to encourage the public to spend and encourage the creation of employment chances. First, the Federal Authority could adopt the fiscal policy strategy. In this strategy, the government reduces the amount of tax levied on the individuals and businesses. This will increase the income of the people and businesses. People will have a large disposable income; hence, they will spend more than they used to spend before the tax cut. Businesses will have larger profits and will be encouraged to expand. They will create employment opportunities as they expand. Due to the lower taxes, individuals will invest their saving while other firms will develop due to the opportunity of creating profits.
Another strategy would be the monetary strategy. The government would increase the money supply in the economy. This could be through inflationary methods of printing money or by central bank monetary regulations. The central bank can lower interest rates so that more people can acquire loans. This will increase the amount of money in the economy which will lead to creation of jobs.
Antitrust Policies are aimed at preventing a monopoly from occurring. Microsoft is a soft ware company that was believed to be discouraging other software companies from joining the industry. This would mean Microsoft would become a monopoly. The government intervened when Microsoft was supposedly said to be planning to bundle out internet explorer. The Antitrust law was used to stop Microsoft from taking full control of the operating system market.
There are two methods of identifying different groups of customers to benefit from discounts for products or services without making other customers feeling alienated. First, the differentiation of products is one way. The products can be the same but be packed in different denominations so that only buyers of one denomination enjoy the benefits of the discount. In this case, it will be easy give offers to different customers without making other customers of that good alienated. For example, a company can produce one service, say bed space. There VIP bed space and ordinary bed space. The discount can be given to the VIP bed space without the ordinary bed space customers feeling alienated.
Another method of giving offers without alienating other customers is selling goods and services in different quantities. For example, a company selling dairy products can give offers to the customers who buy 100kg bags of dairy meal while not offering those who buy less than 50kg of the same product. This will in away help the company sell more of the 100kg bags than the 50kg bags.
In any given economy, monopolies do not operate efficiently due to three reasons. First, the monopoly will not look to improve the quality of its products since it has no competitors to compete with. The monopoly will operate on its own terms because the customers have nowhere else to get the services or goods produced. Another reason is that the monopoly will not produce at its optimal level because it will try to produce less of the product so that it can sell at higher prices than normal. Monopolies usually make abnormal profits because of this reason. This will mean the product produced does not satisfy the market demand. Thirdly, the monopoly will not be efficient because the high prices will alienate some of the consumers who cannot afford the high prices.
References
Hartley, K. (2010). Problems of Economic Policy (Routledge Revivals). New York: Taylor & Francis.
Mankiw, N. G. (1997). Monetary Policy (illustrated ed.). Chcago: University of Chicago Press.
McConnell, c. R., & Brue, S. L. (2006). Economics: principles, problems, and policies (17, illustrated ed.). New York: McGraw-Hill Irwin.
