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Economics

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| Assignment 2 | The Fiscal and Monetary Policy and Economic Fluctuations | | | 12/1/2013 |

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An economy is the wealth and resources of a country or a region. Economy mainly refers to the consumption of goods and services in a specific country or region. The United States of America is known across the entire world as having the largest economy. The economy in the United States today is now where near what it was many years ago. The current economic situation has the country trying to regain its high economic status. The United States economy is really not good in its current state, but somewhat better than it was five years ago. Many people are not aware of the problem that we have in this country. I think that the biggest question in this country in reference to the economy is how we got to this place, with this economy. There is so much blame and finger pointing as to how the United States economy ended up this way. My opinion is that part of the problem in this country is that we depend on other countries to produce things for us that we could or should produce ourselves. The United States economy has changed and somewhat stayed the same as compared to five years ago. Points in this paper that will be discussed will be exports, imports, interest rates, inflation and unemployment. Exports are defined as goods or services produced in the United States and sold in another country. (O'sullivan) Imports are goods and services produced in a foreign country and purchased by residents of the home country. (O'sullivan) The United States is the world’s largest importer. The main import of the United States is crude oil and the problem with oil prices has been the topic of discussion for some time. Crude oil is considered an industrial supply and crude oil counts for half of the 32 percent of imports under this category. (www.tradingeconmics.com) There are many other imports such as Capital goods, which are assets that are used to produce goods and services. (www.businessdictionary.com) Consumer goods are also included. Consumer goods are goods that are purchased and used by consumers. The major import in the past for the United States is oil. According to businessweek.com, the United State has produced more crude oil than it imported since 1955. “Last month, for the first time since February 1995, the U.S. produced more crude oil than it imported: 7.7 million barrels per day in October, versus 7.6 million of imports.” (businessweek.com) As far as current exports in the United States is the third largest exporter. Some of the main exports in the United States are industrial supplies and capital goods. Food and beverages are also exported as well as imported. The main export partners that partner with the United States are Canada, European Union, Mexico, China and Japan. (www.tradingeconmics.com) The United States also has many other trading partners all over the world. Items imported by the United States include petroleum oil, cars, telephone parts and accessories for office machines and telephones and of course many other products. The interest rates in the United States have a strong relationship with inflation. On a normal basis the interest rate changes when there is a change in the rate of inflation. The interest rates have changed drastically from five years ago in the United States. For example, mortgage rates are lower today than they were five years ago. The consumer that purchases mortgages in the economy today has more purchasing power. Consumers have more purchasing power because household incomes are low and the economy is very weak. Five years ago the United States economy experienced a financial crash. Mortgage interest rates are lower today than five years ago. Therefore, mortgage banks or lenders are making great profits. “The five biggest U.S. banks led by JPMorgan Chase and Company, controlled 38.4% of total bank assets in 2007. Now they control 43.9%, according to research firm SNL Securities.” (www.latimes.com) Consumers that had savings and other interest bearing accounts earned more interest on their accounts five years ago than they do today. (www.latimes.com) In an effort to boost the drowning economy, the federal government determined that the need was greater for the credit situation than the savings situation. (www.latimes.com) According to an article in the L.A. times, corporate America has earned more today than they did at the end of 2008. I think that inflation is a problem today for sure. The main problem with inflation in the United States is the rising costs of rents and medical supplies and expenses. “Inflation is sustained increases in the average prices of all goods and services.” (O'sullivan) Today inflation has caused increases. According to the report on the Consumer Price Index (CPI), consumer prices were up 0.1% effective August 2013. (usinflationcalculator.com) The consumer price index measures changes in the price level of a market or basically how much we as consumers pay for goods and services in the United States. It is reported today that inflation is somewhat under control because the rate is less than 4%. I think that the housing inflation was worse five years ago compared to today. Consumers were losing houses due to unemployment and affordability. Many consumers had home loans and interest rates that they really could not afford. The prices of housing were much lower five years ago versus today. The prices of houses are higher now and people would need to make more income in order to purchase a home. The inflation of house prices means that the minimum qualifying income to acquire a home loan is higher than the income that the consumers are making. It appears that the minimum income to qualify for a home loan is going faster than most household incomes in some areas in this country. According to the U.S. inflation calculator, the inflation rate in the United States today is 1.0%. The inflation rate for 2007 was 4.1%. Clearly inflation has decreased in the United States over the past five years. Inflation is driven by the money supply, which involves the deposits to commercial banks made by businesses as well as regular households. Consumers are more apt to spend more in the economy in the United States when they have purchasing power and some of that comes from loans from financial institutions. The unemployment rate is the total number of workers, both the employed and the unemployed. (O'sullivan) The current unemployment rate in the United States is 7.3 percent, according to bls.gov. (www.bls.gov) The current rate includes those federal government workers that were furloughed. As far as minorities are concerned blacks have the highest unemployment rate in the United States. (www.bls.gov) The unemployment rate in the United States in 2008 was 6.5% which is slightly lower than the current unemployment rate. There is not really a difference between five years ago and today when it comes to unemployment. According to the textbook, when the actual unemployment rate is more than the natural rate of unemployment, jobs are scarce due to the poor performance of the economy. The unemployment rate could have changed from 2008 to present time due to people dropping out of the labor force. It appears that people with no or little education have a higher unemployment rate than those with college degrees. Some employers state that they can’t find employees that meet their requirements. This issue could be resolved by potential employees getting more education as well as training programs. One fiscal policy that would encourage people to spend money in order to create economic growth would be by using progressive taxes and Earned Income Tax Credits. “A progressive takes a larger percentage of income from high income groups than from low-income groups and is based on the concept ability to pay.” (www.irs.gov) EITC is another fiscal policy that would increase spending. Earned income tax credit helps consumers keep more of what they earned and is refundable for low to moderate income working individuals and families. (www.irs.gov) A monetary policy that would encourage people to spend would be to reduce interest rates. The reduction of interest rates would encourage spending. Progressive taxes will impact inflation by increasing taxes will lead to increased inflation, higher interest rates and higher unemployment. If the Federal Reserve raises interest rates, it will cost more for consumers to borrow money, increase inflation and the unemployment rates. In conclusion, the economic situation in the United States is different, but somewhat the same as it was five years ago. Interest rates, inflation and unemployment all play important roles in the economy.

Bibliography
(n.d.). Retrieved from www.tradingeconmics.com.
(n.d.). Retrieved from www.businessdictionary.com.
(n.d.). Retrieved from businessweek.com.
(n.d.). Retrieved from www.latimes.com.
(n.d.). Retrieved from usinflationcalculator.com.
(n.d.). Retrieved from www.bls.gov.
(n.d.). Retrieved from www.irs.gov.
O'sullivan, S. P. (n.d.). Survey Of Economics.…...

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