Economics

Economics

A)

United States is one of the largest nations in the world with the most technologically powerful economy. It is characterized as a market oriented economy where the firms and individuals make most of the decisions. Government buys goods and services that they need from the private marketplace. At present, United States GDP is estimated (est.) to be around 15.65 trillion dollars, which is growing at a rate of 2.2 % (est.) annually (CIA, 2013). United States economy still seems to be constantly growing at a rapid pace. The current economic situation in the United States is much better as compared to five years ago when the global recession struck it in December 2007, though it is still recovering from it. Presently, the inflation rate is around 2% (est.) as compared to 3.85% in 2008 which shows a reduction in the general price level. The unemployment rate that is currently prevailing in the United States is 8.2% (est.) which is still high as compared to previous years. Some of the factors contributing to it are underemployment of the workforce and weak labor force participation rate. The recession started in December 2007 which was triggered by the sharp decline in United States Stocks, housing and labor markets which dragged the economy into recession. Recession led to high levels of unemployment and increase in inflation rates, in the United States. The economic downturn and the financial crisis in the United States spread across several other nations. It just did not present ramifications for the United States economy, but for its people as well and eventually for the global economy. The major factor contributing to the recession was the decline in interest rates. Historical data shows that the interest rate in the United States hit a record low of 0.25 % in December 2008. People took advantage of the low interest rates offered by the banks and started to buy houses which they could not afford. As the housing bubble burst in 2006, it led the home owners to foreclose which resulted in huge losses for the banks (Roubini, 2008). Though the United States economy is still recovering from the after effects of 2008 global recession, the economic condition of the country is progressing gradually.

B)

There are various strategies that the Federal government can implement that would encourage the consumer to spend more in order to create employment opportunities. In order to induce increased consumer spending, the Federal government needs to regain consumer confidence in the economy. The government can use different macroeconomic policies that could increase consumerism and hence create employment opportunities. Macroeconomic policies consist of fiscal and monetary policy. Government could use an expansionary monetary policy to encourage consumer spending. As the money supply increases in the economy, the interest rates would fall. People can now borrow money at lower rates and would hence borrow more. As a result, consumers will have more money to spend which would boost the aggregate demand for goods and services in the ...