Keller Graduate School of Management
Business Economics GM545
Online Graduate Course
Summer Session A, July 2010

You Decide
14 August 2010

The deep recession that we have found ourselves experiencing in this example doesn’t deviate far from our current economic situation as we stand as a nation today. With economic analysts predicting that recessionary conditions may persist for at least another year, the economy requires some government intervention to put it back on track. 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.
Prices are falling, with the inflationary rate at -2.4%, making it 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.” 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 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 would recommend pursuing the implementation of expansionary policy to combat unemployment with the goal of expanding the money supply to encourage economic growth and/or plateau inflation. Lowering interest rates and possibly decreasing the reserve requirement will allow banks