Macroeconomics: The Economic Policy of United States

Introduction

Macroeconomics discusses the economy as a whole that corresponds to the result of the evaluation of the millions of individual firms and the consumers make. This tackles the economy as a whole, and because this affects everyone macroeconomic plays a role in a political debate (Scott 2005, 4). The economic performance of the economy does not reproduce the decisions of millions of people. The U.S Federal Reserve, for example, is overall concerned about the level of prices of the United States, monitoring the economy for signs of any price increase. The increase of price rate reflects the number of firms and the amount by which firms are increasing their prices, which means, all the individual pricing decisions that millions of firms make decide the macroeconomic environment (Blanchard 2006, 10).

The Economy of the US

The Testimony of Mr. Ben Bernanke, reveals the condition of their economy, the unemployment, the GDP (Gross Domestic Product), and the financial markets nowadays, which became tighter to their credit conditions for businesses and households. He also discusses the monetary policy and the damage that has done in financial markets, here and abroad, the housing-related activity, the increase of some commodities that affects the incomes of the U.S like crude oils and other demand exports(Board Governor’s 2008, testimony). The investors reduced their confidence in investing in financial aspects due to the risks of some financial products. The business sectors are also affected by the difficulties in housing and credit markets. And since they are affected by these difficulties, business sectors discontinued building homes and trying to sell unsold homes, and as a result, the residential investment was deteriorated, and housing sales are less affordable. The percentage of the unemployed arises. Unemployment is the major problem that affects most people. The loss of a job means reducing the standard of living and leads to psychological distress (Mankiw 2001, 7). This is also one of the major concerns of the US government since the increase of unemployment doubles. Until today, the government is still focusing on how to resolve the issue since the financial markets reduce employment in residential construction and other related industries. In conclusion, the running of the unemployment will be over the next year or so, and the unemployment will relatively change sometime next year.

This issue revolves around the economy of the US and is trying to resolve the issue since it really affects the entire business of the US (McGraw 2004, 25). With regards to monetary policy, the Federal Reserve provides short-term credit to banks against a wide variety of collaterals (Samuelson 1989, 14). The job of the Federal Reserve alleviates the productivity in the short run and stabilizes the long run that involves how the economy is doing now and how is likely doing in the near term like for the next year or so and then it matches up to its goal for the economy and price increase. If there’s a space between the estimates and the goal, the Federal Reserve will then decide how dynamic and how to quickly act to close the gap.

The amounts of goods and services, as well as the employment, can be affected by the short-run business cycle because for example if the demands weaken and there is a recession, the Federal Reserve can arouse the economy momentarily, and help put it back into the long-run level of production by lowering the interest rates, that is why having the economy become stable can smoothes the production and employment around the long run growths paths. Constant effort to enlarge the economy beyond its long-run growth path will push the ability to control and will lead to higher inflation, without creating lower unemployment and higher production in the long run (Romer 2006, 20). In short, not only are there no long-term gains from constantly following growth policies but there’s also higher-price inflation.

The Action of Federal Reserve

As a result, the Federal Reserve made some actions to protect the consumers in regards to their financial transactions since upon their evidence, the financial markets are deteriorating and in the sense of credit quality in mortgage and other household loans, it appears to be urging lenders to tighten their terms on new extensions of credit for widening the credit product (Peter 1997, 30). They have issued a Home Ownership and Equity Protection Act 1994, which stated unfair practices in home equity lending. It launches the truth of lending act and proves requirements of certain loans with high rates and high fees (Federal trade.. 1994).) In effect to this new regulation, the Federal Reserve will still conduct some surveys to the agencies regarding the status of the new act that was given and will also conduct compliance with the mortgage lenders ensuring the effectiveness and consistency so that the financial institutions and community groups help homeowners avoid foreclosures (Fischer 1984, 65). And in conclusion, the Federal Reserve is also focusing on GDP, wherein the production of goods and services weakening the demands of exports due to the lower exchange demand of the dollar.

Reference

Blanchard, Olivier. 2006. Macroeconomics. New York: Pearson Prentice Hall.

Before Committee on Financial Service. 2007. Chairman Ben S. Bernanke. Web.

Federal Trade Commission Protecting America’s Consumer. 2008. Web.

McGraw-Hill. 2004 The Presidency and the Economic Policy.

Samuelson, P.A & Nordhaus, W.D. 1989. Macroeconomics, the Theory and Policy.

Romer, David. 2005. Advanced Macroeconomics. New York.

Scott, Andrew. 2005. Macroeconomics: Understanding the Wealth of Nations. England: John Wiley & Sons Inc.

Mankiw, Gregory. 2001. Macroeconomics 5th edition. Canada: Worth Publishers.

Kennedy, Peter. 1997. Macroeconomic Essential for Media Interpretation. England: MIT Press.

Fischer, Stanley & Dornbusch, Rudiger. 1984. Macroeconomics. Michigan: University of Michigan.

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