Assume that the country is in a period of high unemployment, interest rates are

Question

Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year. Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same. What is the first action you would take as the president? As the chairman of the Fed? Why? What would be your subsequent steps? Make sure you include both the positive and negative effects of your actions and include the trade-offs or opportunity costs.

Include the following concepts in your discussion:

Demand and supply of money

Income and Productivity

Interest rates

Okun's law

The Phillips Curve

Taxation

Government spending

Wages

Aggregate supply

Aggregate demand

Long run and short run

Costs of inflation

The multiplier and the tax multiplier

An open vs. a closed economy

The idea of tax rebates to stimulate the economy

Explanation / Answer

Federal Reserve reacted through raising genuine interest rates higher than compulsory. Unnecessary to define the Phillips Curve was modified. The modification connected defining price setting parts that make choice of a company of the price of the price of its services or good an important view that depends on hope of coming inflation .In this example, present inflation depends on real financial variable for model production cost.

==== ================================================================================================================================================AHowever, Phillip Curve derived from setting of price and became the source for policy assessment. Financial policy has become more unrestricted and price stabilization appears to be it main aim. Policy makers struggle for both low inflation and low unemployment.

================================================================================================================================================A low inflation policy, if implicated, anticipates inflation is reduced and low nominal wages increase as agreed. Once concluded, it is tempting for monetary policy makers to let inflation increase because real wages are reduced and employment raises.

================================================================================================================================================AThis policy is basically a temporary fix to the problem and not intended for the long haul . The economy never seems to balance high inflation without reaching lower unemployment. The tradeoff between unemployment and inflation first reported in the late 1950's is simply that as joblessness falls staffs are authorized to push for higher salaries.

================================================================================================================================================ADifferent companies attempt to approve the higher salary cost to the customer ensuing in higher prices and inflation constructs in the financial system. This trade off simply permits policy makers to focus low rates of inflation or low joblessness, but not both .

================================================================================================================================================Despite of selecting between higher unemployment and higher inflation, policy makers were supported to concentrate on assuring that the financial system still at its real rate. The task was to correctly anticipate its position and to steer the financial system towards development rates that presented stability of price no concern what the standard of joblessness.

================================================================================================================================================AThe long time of low interest rates and even prices appear to be ending. The cost of Operation Desert Storm or Iraq War, growing oil and food prices, and different foreclosures of adjustable rates mortgages has actually fueled the resurge of inflation.

================================================================================================================================================The near unemployed recovery from the last depression proposed that the natural rate of joblessness will grow again. In conclusion, we are headed for another recession .

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