Creative problem solving scenario #1: The rate of growth in the US economy is cu

Question

Creative problem solving scenario #1: The rate of growth in the US economy is currently 0.5% annually. Your mission is to increase our growth rate to at least 4% annually, without setting off unacceptable levels of inflation. You have the tools of fiscal and monetary policy available. ****Focus on increasing the quantity and / or quality of natural resources as a means to stimulate economic growth.**** a. Present your solution to the problem – write it down. i. Strategy for creating your solution: 1. First identify a specific natural resource and think through how having more of it or a better quality of it could lead to significantly increasing the GDP growth rate. 2. This will lead you to a general solution to the problem. 3. Determine what will be required to make the solution happen, typically it is money. 4. Think of ways to use your fiscal and monetary policy tools to get the needed money. 5. To attack the problem you must select at least one Monetary Policy tool and one Fiscal Policy tool. b. Write down the names of the one fiscal policy tool and the one monetary policy tools you picked. i. Remember – for this question you need one Fiscal Policy tool and one Monetary Policy tool. c. Explain why you picked the tools that you picked and why you did not select the other choices. i. Specifically explain, what is good about the tool you selected and what is not so good about the tools you did not select? Do this for both the monetary and fiscal policy tool that you selected. d. Thoroughly and completely explain how your solution would work to solve the problem, and indicate the impact your solution would have on the key economic variables using up or down arrows. Please present your answer using a chain of events format. Be specific.

Explanation / Answer

1. In order to increase the growth rate, economy needs more resources. US should try to capture more and more of petroleum. By finding a better technology of refining it, it can be converted into better quality of petroleum.

2. In general, when supply of petroleum will increase, rapid industrialization and fast transportation can take place in the economy.

3. But we need money for it.

4. We can make use of monetary and fiscal policy for it.

5. An expansionary monetary and fiscal policy should be used ot create money.

6. For this we need to reduce discount rate, reserve ratio and sell securities in open market. For expansionary fiscal policy, subisides may be increased and taxed may be reduced.

7. I would prefer to reduce taxes in fiscal policy and decrease reserve ratios. This tool is suitable because petroleum cannot be subsidized as people may misuse this non renenwable rsource. In monetary policy, decreasing reserve ratio works most directly and efficiently.

8. With increase in supply of petroleum, economy's production capacity will increase in all industries-drectly or indirectly. It will lead ot increase in growth rate.

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