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The Fiscal and Monetary Policy and Economic Fluctuations

Five years ago, the United States experienced a severe recession that had serious effects in almost every aspect of its economy. Due to the recession, unemployment rates increased, income levels of individuals decreased, and the country’s GDP reduced. It is imperative to highlight that recession affected several countries in the world and the United States was among the nations that witnessed dire effects from the crisis. Therefore, the essay examines the fiscal, monetary, and economic fluctuations in the United States after the crisis.

Five years after recession, the current economic situation in the United States reflect a slowly recovering financial system. Several sectors are gradually recovering from the shock and a number of investors are skeptical and insecure unlike before the recession. Roberts (2010) highlights that although the economy is steadily rising, the interest rates have not changed in pronounced levels because the effects of economic growth are still minimal.

In addition, inflation rate is slowly diminishing and several individuals can afford various products that were initially beyond their purchasing power. The high rates of unemployment that occasioned when numerous organizations dismissed their employees is also reducing and a number of private and public firms are progressively hiring several individuals in the country. Irrespective of the rising rates of employment, the current rate is still lower than the previous rate before recession.

Over the last five years, the United States has witnessed various changes that concern interest, inflation, and unemployment rates. After recession, the interest rates in the country decreased. Presumably, the country reduced its interest rates in order to increase the purchasing power of the public and initiate an eventual increase in its level of revenue. Baumol and Blinder (2012) assert that when the rate of inflation reduced, the amount of individuals, who purchased products augmented.

The main objective of reducing the level of inflation was to boost the amount of money that people spent, and thus, occasion a rise in the country’s economy. In essence, the changes that materialized in the country diminish the rates of unemployment. Since several individuals are currently spending high amounts of money, the level of revenue within the country has risen, and hence, many private and public investors are hiring several people to meet the rising numbers of prospective consumers.

The two main strategies based on fiscal and monetary policies that the country can employ to encourage high spending and boost economic growth comprise tax cuts, infrastructural developments, and determination of interest and inflation rates. Significantly, tax cuts and infrastructural developments are components that the strategy of fiscal policy incorporates, whereas determination of interest and inflation rates fall under the framework of monetary policy. As a result, the strategies are two and incorporate several aspects.

Miller (2011) explains that according to the aspect of tax cuts, the country reduces its taxes in order to increase the spending behavior of its public, and in turn, boost its revenues. Consequently, infrastructural developments increase job opportunities for the public and reduce unemployment rates in the country.

On the other hand, monetary policy focuses on improving the purchasing power of the public. Interest and inflation rates need determination so that they do not strain prospective consumers and compel them to minimize their spending. Therefore, a country should ensure that its interest and inflation rates are in harmony with consumer’s purchasing power, and thus, encourage them to increase the amount of purchases.

The two strategies that concern fiscal and monetary policies have profound effects in determining unemployment, interest, and inflation rates. Fundamentally, when a country manages its fiscal policy effectively and introduces tax cuts, the buying power of its public rises (Liou, 2002).

As a result, the amount of money that circulates within a country increases. Moreover, when the country instigates various infrastructural developments such as schools, hospitals, and roads, job opportunities increase and unemployment rates reduce. By successfully managing its monetary policy, a country adjusts its interest rates in line with the purchasing power of its public and uses it to increase the level of money that they spent. In addition, the country should keep its level of inflation within a certain range that encourages people to augment their buying habits and in turn increase the amount of money within the region.

The economy of the United States is gradually recovering five years after a recession that had severe impacts on its financial state. Although recession affected several other countries in the world, the United States was one of the countries that suffered significantly from the crisis. The crisis affected its employment, interest, and inflation rates. Because of the crisis, several public and private firms dismissed their employees hence, elevating the rate of unemployment.

The level of interest also rose and compelled many people in the country to minimize their spending. Moreover, inflation rates heightened, and thus, several people could not afford various products that they initially purchased. The aftermath of recession involves a steady economic growth, reducing rates of unemployment, and useful adjustments in interest and inflation rates that amplify the country’s economy.

References

Baumol, W., & Blinder, A. (2012). Macroeconomics: Principles & Policy. New York: Cengage Learning.

Liou, K. (2002). Managing Economic Development in Asia: From Economic Miracle to Financial Crisis. Westport: Praeger Publishers.

Miller, G. (2011). Government Budgeting and Financial Management in Practice: Logics to Make Sense of Ambiguity. Florida: CRC Press

Roberts, M. (2010). The Great Recession: Profit Cycles, Economic Crisis a Marxist View. Lexington: S.n.