The United States economy influences the global business environment in a significant way. The reason behind the control is that the US is a superpower, and its economy is linked up with other foreign nations that the US is interacting with through international trade. Also, the US connects with the developing countries through aids and grants it issues to the countries. Through the international trade, United States acquires a significant amount of revenue since the economy invests in the importation of primary inputs and exportation of machinery and auxiliary products. The earnings make the economy run on a relatively balanced balance
The President of the United States and the Congress control the economy through fiscal policies. Economic policies target government spending and taxation as a measure to monitor and evaluate the economy. The president of the US and the Congress stipulate the amount of public expenditure to be incurred. The Congress holds formal meetings where laws and amendments are made regarding the economic growth of the nation. For the president and the Congress to stimulate growth in the economy, changes are undertaken on the level of government expenditure to be incurred. The budget is increased and with the rise, more projects are funded, and employment is created. The salaries and wages paid inject money into the economy which ensures a cash flow. Also, the government can reduce tax rates to enhance economic development. Reducing taxes makes the households have more disposable income which they tend to use on consumption. Also, reduced taxes enable businesses to grow due to the increased return on capital which is as a result of a decline in the production cost.
When the president and the Congress want to curb economic growth by cutting down the disposable income of households, they raise taxes. The reduced consumer income minimizes their purchasing power and makes them have the desire to save rather than consume. Also, the government can opt to reduce the level of government spending in the economy. When the government spends it injects cash into the economy, hence by reduction of expenditure rate, cash is withdrawn from the system which slows economic growth.
The federal reserve of the United States is the central bank of the economy. The role of being the central bank makes the institution the major controller of the world economy since the US is a superpower. The Federal Reserve monitors the economy through executing money regulating policies. When the monetary policies are undertaken, the inflation and unemployment rate is controlled hence promoting economic growth in the economy. The bank acts as the other banks banker, and it monitors the financial activities of the federal government and advises when the need arises. To control the economy, the Federal Reserve uses tools such as Open Market Operations, Cash-reserve Requirement, and interest rates.
When the money flow in the economy is not optimal, the Federal Reserve employs expansionary monetary policies. The bank lowers the interest rates which in turn makes local banks lower theirs and expand the loans and credit facilities (SARDONI & WRAY, 2006). The increased liquidity in the economy enables investors to venture in businesses that in turn create jobs hence facilitating economic growth.
Open Markets Operations is whereby the Fed controls the sale and purchase of government securities. The Fed buys the government securities to stimulate economic growth. When the securities are purchased, the money is supplied to the economy hence enabling economic growth due to the transactions involved with the amount released to the money market. The cash reserve ratio on the hand is a deposit that the Federal Reserve requires other banks in the economy to hold with them. Through this reserve ratio, the Fed can monitor the operations other commercial banks. The Fed government lowers the cash reserve ratio which in turn makes commercial banks hold with them enough deposits to lend to households at reduced interest rates.
In case the Fed wants to check rapid economic growth, it applies contractionary monetary policies. A rapidly growing economy is disastrous because it causes price increase by producers and firms which lead to inflation and unemployment. Hence, the Fed, at times needs to apply inflation curbing techniques which are raising interest rates of commercial banks to discourage them from giving out loans and credits. The commercial banks increase lending rates making the cost of borrowing expensive. Increasing the discount or reserve level the banks have to hold with the Fed achieves this motive efficiently. Saving increase since households’ purchasing power decreases which makes them have the desire to save. The interest in saving can be attributed to increased bank interest rates on savings (Griffiths, 2002). Also, the bank can embark on selling the government assets and securities to the public to reduce the money in circulation.
Over the recent past, the policy makers in the United States have been faced with a crisis of price-level management and increased the cost of living. The crisis has influenced the decision makers to come up with decisions to curb the situation. The mortgage rates have been escalating over the past decade and measures have to be undertaken to curb the situation which has motivated the Fed and the government to come up with control measures. Policy makers also have been driven by the increased cost of consumer products and services such as health and transportation. The prevailing factors in the economy combined have had an impact on making the policy makers to take decisions such as increased taxation to curb the inflation that is creeping in.
The US Federal Reserve has stipulated goals that it is focused on achieving as the economy grows. The goals are ensuring financial market stability, increasing productivity in the economy, full employment, stable prices and interest rate. A stable financial system provides that people can invest and save confidently and enhances people’s trust in the currency. Price stability and a stable interest rate will make sure that the economy grows at a constant rate hence eliminating inflation.
The current economic growth of the US, which is a 2%, can be attributed to the persistent inflation and the oil crises that has on the rise over years. According to the Fed, the strength of the economy is increasing with the oil crises having been solved by the agreements and partnerships formed. The interest rate is being controlled to monitor the money flow in the economy which ensures growth.
Other strong world economies such as Russia and the Great Britain usually have a degree of control of the US economy. The reason is that the economies have their economy and currency to strengthen. At times, this can cause the economies to get into cold wars with the US with each of them having self-interests that they want to accomplish at the expense of the other. However, international trade rules and regulations govern the interaction and commerce between the economies ensuring there is no friction amongst them. The economies can come up with partnership such as the oil and gas deal that was made by the US, Russia and Iraq in 2011 about control of petroleum prices. The agreements make the countries being involved invest in the US economy due to the agreements made. Russia and Iraq have made investments in oil factories and refineries in the US which in turn has generated revenue for the government due to taxation and shares held by the companies. Before the agreements were made, there has been oil crisis all over the world, and inflation was rampant in most economies in the world since most of the economies import the commodity.
For the US economy to take a definite turn various reforms, have to be made, and they include enhancing economic growth through innovation (Beschloss, 2010). The strategy creates jobs hence solving the unemployment problem. Another approach is making it less hard for foreigners to settle in the US. Some foreigners are very equipped with technical knowledge and skills that might be productive in the industries, but they are shut out by the harsh immigrant laws. The law-abiding skilled foreigners willing to live in the US should be allowed so that the nation can capitalize on their technical labor. Also, the unemployed people in the economy should be encouraged to volunteer rather than receive the upkeep funds the government gives for no reason. When the unemployed are working as volunteers, productivity in the economy increases and even they are justified of the fund they receive. For the recommendations to be undertaken, they require intervention and cooperation of all the stakeholders in the economy that is, the government, the Federal Reserve, and the households.
References
Beschloss, M. (2010). The United States and the world economy in the future: America′s global exceptionalism firmly rooted in entrepreneurship. Surgical Neurology International, 1(1), 29. http://dx.doi.org/10.4103/2152-7806.66459
Griffiths, D. (2002). The attrition rate of United States coins in circulation: some evidence from Federal Reserve data. Applied Economics, 34(16), 2023-2029. http://dx.doi.org/10.1080/00036840210122362
SARDONI, C., & WRAY, L. (2006). Monetary policy strategies of the European Central Bank and the Federal Reserve Bank of the United States. Journal of Post Keynesian Economics, 28(3), 451-472. http://dx.doi.org/10.2753/pke0160-3477280305
