You Decide
Business Economics - GM545

In the case presented the U.S. economy has fallen into a severe and deep recession that economic analyst believes will persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years as the current unemployment rate is 8% and is expected to continue to rise. The inflation rate is -2.4 percent, suggesting that deflation has occurred since prices are falling. Deflation happens when consumers quit buying things, and prices start going down as the demand for goods decrease combined with a decrease in the money supply. Overall there is a decrease in aggregate demand.
As is the situation with the case presented – often times the adjusting mechanism forces of the free market alone are not sufficient enough to pull an economy out of recession or to shorten its length. Action by way of fiscal and monetary policies should be taken to expand the economy again and increase aggregate demand.
Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain full levels of employment, price stability, and economic growth. Monetary policy is the responsibility of the Federal Reserve System, which uses three main instruments: open-market operations, the discount rate, and reserve requirements to manipulate the money supply and interest rates. Fiscal policy decisions are made by the President and Congress and entail the use of government spending and taxation to influence the economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy activities. (Stone)
My recommendation to the President would be to execute Expansionary Fiscal Policy measurements to increase the aggregate demand. While I agree with Economic Consultant, Raymond Burke regarding the need for