What is the current macroeconomic situation in the U.S. (e.g. is the U.S. economy currently concerned about unemployment, inflation, recession, etc.) What fiscal policies and monetary policies would be appropriate at this time - Essay Example

Macro and Micro Economics Current macroeconomic situation in the US is providing somewhat mixed signals when scrutinized for current unemployment situation, inflation and GDP growth. While inflation found to be well in control, GDP and unemployment rates are not showing clear signs of improvement. The paper will attempt to explore critical macroeconomic parameters that exist in the US economy currently and would suggest some of the ways to improve them. Unemployment Situation Unemployment rate is one of the important macroeconomic parameters to speak about the current economic condition.

During boom time, unemployment rate declines suggesting favorable economic condition within the country. However, as economy moves southward unemployment rate keeps on rising. Investors stop making any new investments. Usually, market moves through its business cycles. The above chart from the Bureau of Labor Statistics reveals that unemployment rates during Jan 2008 were nearly 5% that peaked to 10% by end 2009 that remained above 9 percent at least until September 2011. Since then unemployment rate began reducing; however, it is still hovering above 6 percent.

It is important to note that unemployment rate reduced rapidly in 2013 from 7.9% in January to 6.7% in December; however, first two quarters of 2014 has not shown significant drop in unemployment rate (Bureau of Labor Statistics, 2014). Gross Domestic Product (GDP) Growth Rates Gross Domestic Product and its growth rate is a good measure of country’s economic situation. Rising GDP does show that people’s income, on aggregate basis, is also rising. The below mentioned chart suggests that in wake of financial crisis, GDP growth rate remained negative throughout in 2009.

It did recover in 2010 but again went negative in 2011 for a brief period. After touching its peak in first quarter of 2012, it again showed downward trend until last quarter. The first three quarter of 2013 showed continuous GDP recovery to touch 4 percent in third quarter but subsequently declined in the last quarter of 2013. The first quarter of 2014 again shows declining GDP growth rate. It appears that economy continues to pass through turmoil and has not yet stabilized well. In short, it is still showing mixed signs of recovery and retreat quarter to quarter (United States GDP growth Rate, 2014).

Source: http://www.tradingeconomics.com/united-states/gdp-growth. Government manages economic recession through expansionary fiscal policy by which the government increases spending to increase aggregate demand in market to bring the economy out of recession. At times, government reduces taxes to stimulate demand of goods and services and that is also described as expansionary fiscal policy. Deficit budgeting, as a part of fiscal policy, is a powerful tool to bring the economy out of recession (Beggs, 2014).

Inflation Rate Low inflation is always one of the important criteria and a necessary condition for economic growth. The Federal Open Market Committee (FOMC), the branch of the Federal Reserve has set the target of inflation less than 2 percent and the committee has been able to achieve and stabilize inflation below its targeted level for last almost two years (FOMC, 2014). Source: http://www.tradingeconomics.com/united-states/inflation The FOMC sets key interest rates and takes decision on increasing or decreasing money supply through either buying or selling government securities.

Post 2008 financial crisis, the FOMC made large purchases of federal securities to reduce long-term interest rate – to stimulate economic environment in the country. The committee has been largely successful in its endeavor to controlling inflation and keeping interest rates low. Federal Reserve uses several tools such as open market operations, discount loans, or make changes in reserve requirements. Open market operation is the most effective tool at the hands of Federal Reserve to manage money supply on short-term basis (FOMC, 2014).

Stimulus package granted by the Obama administration did work and saved the US economy going into depression. Between 2009 and 2014, stimulus package created, on average, 1.6 million jobs per year. In fact, it prevented 5.3 million people to slip below poverty base line (What the Stimulus Accomplished, 2014). To improve the economy further and reduce unemployment rate, the government need to spend large sum of money on job training and developing new skills so that it could increase employment opportunities for those who are unemployed.

Stimulus package has done enormous good to the economy benefitting tens of millions of people. Spending on infrastructure development can boost the construction activities in a large scale as that has received a biggest setback after the housing bubble. Construction industry provides one of the largest employment opportunities to the skilled and unskilled workers; that can be refurbished through spending in infrastructure sector in a large scale. References Beggs, J. (2014). What is Fiscal Policy?

Retrieved June 14, 2014 from http://economics.about.com/od/Fiscal-Policy/ss/What-Is-Fiscal-Policy_2.htm Bureau of Labor Statistics (2014). United States Department of Labor. Retrieved June 14, 2014 from http://data.bls.gov/pdq/SurveyOutputServlet FOMC (2014). FOMC and its activities. Retrieved June 14, 2014 from http://www.richmondfed.org/faqs/fomc/ United States GDP growth Rate (2014). Trading Economics. Retrieved June 14, 2014 from http://www.tradingeconomics.

com/united-states/gdp-growth. What the Stimulus Accomplished (2014). The New York Times. Retrieved June 14, 2014 from http://www.nytimes.com/2014/02/23/opinion/sunday/what-the-stimulus-accomplished.html