Gm545 Business Economics - You Decide Week 6

Gm545 Business Economics - You Decide Week 6

The deep recession, in this example, doesn’t deviate far from our current economic situation we are experiencing as a nation today. With prices falling and unemployment rising, a combination of both monetary and fiscal policy will be needed in order to bring the nation out of this severe recession. Due to falling prices, with the inflationary rate at -2.4%, it is evident that both businesses and individuals are not spending and overall aggregate demand (AD) is falling. The Economic Consultant to the President, Mr. Raymond Burke, has recommended that the President lower interest rates to further help businesses and consumers “get back on their feet.” I agree with lowering interest rates as Raymond Burke said because lowering interest rates should encourage consumption and investment. However, there are some inaccuracies in what Mr. Burke is recommending. The President has neither the ability nor the authority to make adjustments to interest rates. The Federal Reserve (the Fed) is responsible for the discount rate and for setting the reserve requirements. I do not agree with raising taxes as Kathy Lee states because that would mean less money would go to the economy, and as result there would be an increase in prices and/or job cuts. I also do not agree with reducing government spending as Kathy Lee said because this would exacerbate the situation with more contraction in the gross domestic product (GDP). I do not agree with Ms. Patricia Lopez’s, Consultant to the Federal Reserve, recommendation to leave interest rates alone, sell bonds, and raise the bank reserve. Raising the bank reserve will discourage banks from lending, which prevents businesses from expanding operations or from consumers from obtaining loans to purchase goods. I agree with buying bounds as Allison Tanney recommends because this would allow money to circulate by paying investors who hold bonds, causing the money supply to increase. I do not agree with increasing interest rates and bank reserve...

View Full Essay