Assignment 2 The Fiscal and Monetary Policy and Economic Fluctuations

Topics: Monetary policy, Inflation, Unemployment Pages: 4 (1571 words) Published: June 5, 2014

Assignment 2
The Fiscal and Monetary Policy and Economic Fluctuations
Dr. Emmanuel Obi

The U.S. Economic Situation: A 5 Year Comparison
Compared to five years ago, the U.S. economic situation has improved. The real gross domestic product (GDP), a macroeconomic measurement used to “summarize the total production of [the] entire economy” (O’Sullivan, Sheffrin, & Perez, 2012), has shown positive growth since the bottom point of the recent recession that occurred in 2009. (See graph in Figure 1.) In actuality, by 2012, growth in the U.S. GDP surpassed that of the 2007 pre-recession point. on the other hand, the key economic indicators of interest rates, inflation, and unemployment were examined for the same time period, from 2007 to 2013, in an effort to discover potential correlations between them. First, U.S. government security interest rates published by the U.S. Treasury reflect a steady reduction since the height of the recession in 2009. Specifically, in 2007, the average annual rate was 2.34 percent and in 2012 it was .017; a 99 percent decrease of 2.323 percent over this five year period. (See graph and table in Figure 2.) It is most imperative to go over that the vast majority of the reduction in government security interest rates occurred between 2009 and 2012, reflecting a correlation and potential Treasury reaction to the 2009 recession that is indicated in the previously discussed U.S. GDP. Second, U.S. inflation rates published by the Bureau of Economic Analysis reflect a steady and marginal growth since the height of the recession in 2009. It is important to recognize that inflation, as defined by O’Sullivan, Sheffrin, and Perez (2012) is the “percentage rate of change of a price index”. These authors/economists propose that either the GDP or the Consumer Price Index can be used to conclude inflation (O’Sullivan, Sheffrin, & Perez, 2012). Conversely, the Federal Open Market Committee (FOMC), a section body of the Board...

References: U.S. Bureau of Labor Statistics. (2012). The Recession of 2007-2009. Retrieved from http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf
Viard, A
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