Current Economic Conditions: the Role of Fiscal and Monetary Policies in the United States
The Role of Fiscal and Monetary Policies
In the United States
July 25th, 2012 Over the past ten years, we have seen a weary world with uncertain economic turns with more downswings than upswings. Some might say the worst affected economies have been the once invincible super-powers of the western world such as Western Europe and the United States. The ongoing uncertainties of the Euro as well as numerous bailouts have caused more speculation and fewer expectations. Critics argue that with proper policies and regulations the financial meltdown could have been assessed more efficiently or altogether prevented. The realization of uncontrollable powers such as political environments, foreign economies, …show more content…
Taxes are a subject, aside unemployment and the GDP, in which the media largely focuses on. The political battle coming up in November will be trenched with arguments on taxes. In a recent article on the Wall Street Journal “Obama Tax-Increase Plan Gains Supporters,” Obama “restated his desire last week to preserve existing tax rates for incomes under $250,000, while allowing taxes to rise for households making more than that amount,” while his opponent Romney sees it as detrimental for small business growth. While taxes are seen as an opportunity to create jobs, there are other alternatives such as adjusting interest rates.
When the interest rates are cut, we know that investments increase along with GDP, production, income, spending, and most importantly jobs. The economy has seen this theorized domino effect increase ever so slightly. Some of the expansionary policies implemented during the “Great Recession” of 2008-2009 started in late 2008 when the US Central Bank decided to cut interest rates (Lewis.) Lower interest rates, as we have seen in recent months like June at 1.62 percent, are one way the Federal Reserve can encourage people to borrow and spend. The GDP growth rate, although not negative, has not increased enough to spark the multiplying effect on production, income and so on. The interest rate cuts did help slow down the downward spiral of the economic crisis in 2008, but we are