ECONOMICS

Understanding the Nature of National Environment

Understanding the Nature of National Environment

Resource allocation

Resource allocation is the distribution of such individuals or to allocate resources, goods and services may use different methods. The people, whether acting individually or through government, must choose which methods to use to allocate resources and services are available at an economy. The individuals and organizations use Individuals and Organizations routinely use different decision-making systems to determine what and how should occur and who consume this or that product. No method of distribution method of distribution not of goods and of goods and services can satisfy all needs. Each system has advantages and disadvantages (Botsman & Rogers, 2010, pp. 95).

Effects of Monetary and Fiscal Policy: A Perspective

Once the U.S. had finally abandoned the gold standard, the Fed became responsible for regulating the country's money supply. Indeed, the Fed is charged with striking a balance between spurring economic growths and curbing runaway inflation. Bernanke has described the Fed's mandate as being "to promote maximum sustainable employment and stable prices," while inflation--the opposite of stable prices--is "the bane of central bankers." The Fed's most conventional method of regulating the money supply is influencing the interest rates that banks charge each other for loans. When rates are low, banks are encouraged to lend money, spreading it throughout the economy. When rates are high, banks are more likely to keep that money in their reserves, which leads consumers and businesses to spend less. Inflation increased moderately throughout the 1950s and 1960s. Substantial government spending on social programs, however, combined with skyrocketing energy prices, led to soaring inflation in the 1970s. Most wages did not keep pace with rising prices; the combination of inflation and economic stagnation became known as "stagflation" and resulted in slow economic growth for much of the decade.

In 1980, President Jimmy Carter (D, 1977-81) appointed Paul Volcker as Fed chairman. Volcker raised interest rates, decreasing the money supply and making loans harder to obtain. The economy eventually contracted; indeed, the Fed essentially started a recession in the early 1980s, believing that slowed economic growth was necessary to end the skyrocketing inflation of the 1970s. Although the recession was deep, and many people lost their jobs, the economy had begun to improve by the mid-'80s. Inflation had also been contained, rising at a more moderate pace than it had in the '70s. The Fed kept interest rates low for most of the 1990s, resulting in a healthy supply of circulating money that increased business and consumer spending. The generally vigorous economic growth of that decade was also fueled to a large extent by a boom in Internet stocks. The so-called dot-com bubble drove the stock market to new highs and enabled many middle-class investors who were not experts in finance to become quite wealthy.

By 2001, however, it had become clear to investors that most Internet stocks were trading for more than they were worth, and the dot-com bubble burst. The stock market then fell rapidly, and many people lost large ...