You are the Chief Economic Advisor of the President of Dreamland. Right now the

Question

You are the Chief Economic Advisor of the President of Dreamland. Right now the country has unemployment of 7.7 % . The country has suffered a severe recession few years ago and it is showing some signs of slow growth lately but lot of people are still out of jobs , federal annual budget deficit is $ 1 trillion a year and a national debt of $16 trillion. Its currency also has lost a lot of value against major foreign currencies creating a backlash from other major trading partners recently. Some manufacturing companies are moving out of the country in search of cheap labor and the ones at home are not doing as good and some big ones like auto are trying to cope well after coming out of bankruptcy . Energy , food and commodity prices are also relatively high and going higher , leading to some inflationary pressure in the economy and the housing market is in trouble with lot of foreclosures leading to a lot of Bank failures . Dreamland is also facing a huge trade deficit and approaching fiscal cliff . The President wants your smart advice. He wants to turn things around real fast and get the economy back on track with your help !!

a. Advise your President in detail to save your job and get a good grade .

b. What would happen to his attempt to attain a balanced budget ?

c. How would the President tell that his economy is approaching equilibrium or getting better ?

Explanation / Answer

Short-term gains can be achieved with manipulations with the money supply, interest rates, and other such factors. But, for a true, long-term plan for a real resolution, tax laws should be modified in various areas, to:

Make it very expensive for corporations to outsource work to foreign countries. This will bring jobs back to the US;

Impose new taxes on foreign investment by US businesses, forcing more investment and re-investment in the US, also providing new jobs, plus an overall economic stimulus by creating increased markets for property sales, infrastructure development and general business development;

Give tax incentives for R & D and production in the field of alternative energy. Massive tax benefits will go a long way to remove dependence on foreign oil and to create new industries in the US producing solar engery, wind energy, and biodiesel and ethanol-based vehicle technology.

A balanced-budget amendment is a constitutional rule requiring that the state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.

Balanced-budget provisions have been added to the constitutions of most U.S. states, the Basic Law of Germany, the Hong Kong Basic Law, Spain, Italy and the Swiss Constitution. It is often proposed that a balanced-budget rule be added to the national United States Constitution. Most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote.

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