Monetary PolicyEssay Preview: Monetary PolicyReport this essayUpon viewing the simulation, we gather that the monetary policy is not effective since the demand for loans is shrinking, although it is at a low interest rate. Much like JapanÐŽ¦s recession in the 90ÐŽ¦s, there is too much money in the market. Demands for investment is low and therefore demands for loans decrease as well. The recession in Japan was a prime example of a non-stimulated market when investors were unwilling to borrow even though interest rates were at 0%. Lowered interest rate will not recover the economy. If this situation prolongs, a wave of panic through the population will ensue and deflation may occur since the public is consuming, rather than spending.
The ultimate risk of slowing inflation is that it may cause a recession. Slowing inflation also causes unemployment to rise, GDP and interest rates to drop proportionally to inflation, and the reserve ratio to increase. The increase in reserve ratio will cause less return for lenders.
To mitigate these risks, interest rates must decrease in order to stimulate investment and for consumers to put their money in the market. By having an influx of investment in the economy, more jobs will be created, thus decreasing the unemployment rate.
Deflation must be avoided at all costs because redistribution of income is not balanced. There is very little money circulating the market and the price of utility is not stable. Commodities are dropping in prices. Like the Japanese example above, an economy suffering from prolonged recession is very difficult to recover. Implementation of necessary monetary policies to bring the economy back to normal levels is important. We suggest having positive externalities, like subsidiaries from the government to build a comparative advantage in the market. Interest rates will decrease, aggregated demand will increase, income and imports rise, the Balance of Payment (BOP) deficit under these circumstances will be more efficient and produce better investment. Results from this solution will start to show in six months to a yearÐŽ¦s time.
The OECD and the IMF have said that the current U.S. rate of inflation is insufficient to stabilize the economy and to prevent a repeat. U.S. growth has already been driven back under the “catch-22” of U.S. labor market-wide pressures—which are growing at a steady rate, but which are also increasing on a much faster scale. The current inflation outlook is too optimistic.
In addition, this situation does not mean that there would be severe downward pressure on the United States in its recovery. The recovery under the recovery-focused “catch-22” of the “fiscal cliff” deal was not created by the collapse of the U.S. stock market. Instead, this was a result of a sharp change in the fiscal and monetary policy of the United States economy, rather than a positive result of a failure to achieve monetary policies. Moreover, the recovery has not had a significant impact on U.S. GDP. The United States is continuing to be an economy of highly elasticity and robustness, the result of all of the below-average labor market forces on labor costs, wages and benefits.
3. If the government’s main activity is not saving money, some of the government’s discretionary expenditures may be insufficient to provide basic needs such as basic heating, utilities, etc.
In contrast, a government could save with a small monetary budget using a low-interest rate program. This combination of a low nominal interest rate, a high nominal credit line, the inclusion of other goods and services, and other low-cost-of-living measures would create a very large fiscal surplus. Moreover, this surplus could be used to build back up private and public sectors with high-quality assets, such as stocks. Of course, this is not the same as creating a balanced budget that generates income and supports government’s fiscal operations.
Finally, the U.S. needs to make sure that the domestic production and exports of U.S. goods remain safe and secure, something that can only be achieved through a balanced budget. Most Americans lack sufficient understanding about fiscal policy to make this very complex decision. A recent survey found that the U.S. government is spending $1 trillion a year on the debt and is also using less than 10 percent of its GDP on defense. This translates to an estimated $10 billion a year for each of the three defense program levels that fall below the 1 percent. In contrast, the international growth rate (FOM) has averaged around one-fourth of the global FOM. Such a large deficit is impossible to stabilize and is therefore not desirable to avoid.
The OECD is taking the policy decision in this manner. The OECD is using the OECD’s own study conducted at an office facility in Mexico City that found that the U.S. deficit with the highest level of deficits under the stimulus program was $3 trillion. The program was implemented in 2009 and has been continued through 2016.
The U.S. government should spend more in the economy to sustain its fiscal integrity by spending more. This means lowering the budget allocation allocations so that this is not only not the case, but would not be the right policy decision since a positive fiscal policy result could result in a higher annual revenue and spending growth rate. This would in theory