The United States of America has the largest economy in the world and from statistics; it is in a good shape since five years ago. The economy of the United States of America is continuously growing and at the present, it has a GDP growth of 1.8%. The economy is still recovering from the recession of 2007 and 2008. The unemployment rate in the U.S currently estimates at 8 %. When comparison occurs to the previous years, the results show that it is high and this is because of the current economic situation. The improvement is because more Americans started to participate in the labor force. The working-age Americans increased to around 58 % and the employers have added jobs. The recession led to high unemployment rates, decreased consumer confidence, increased inflation and contraction of the economy. Currently, the consumer confidence reached the highest levels since 2008 (Ip, 2011). The housing activity has improved and the prices of homes have increased. The economic pointers for consumer purchases and manufacturing output are more promising. These positive indicators also show that the forecast for job growth is likely to increase in the next few years. The aggregate economic output measured by Gross Domestic Product of America currently stands at 15.68 trillion and it is expanding at an annual rate of 2.80 percent. The indicators show that the GDP will rise in the near future.
The recession of 2008 to 2009 led to monetary and fiscal policies from central banks and government authorities. For example, the bank of England and The Federal Reserve implemented large-scale asset purchase policies. The recession had resulted in the loss of country`s GDP. The fiscal and monetary policies meant to create stability. The monetary expansionary measures affected the inflation rates and the fiscal policies have influenced the expectations on the growth of economy. In recessions, the central banks respond through the monetary policies. The central bank implemented exchange rate related policy to prevent excessive currency appreciation. The interventions improve demand for exports and prevent inflation from falling. Debt management and credit policy lowered the borrowing costs. The U.S. Federal Reserve set short-term interest rates, which influenced the economic trend. It enacted a low rate policy close to zero to stimulate growth. The low interest rates helped the households and businesses to finance the new spending. It also helped to support the prices of other assets like houses and stocks. The Federal Reserve purchased long-term Treasury securities to reduce the long-term interest and provide support for the American economy. These asset purchases support the recovery of the economy by maintaining downward pressure on long-term interest rates (Carlberg, 2010). It makes the financial conditions conducive for businesses and households. The monetary policy has an important influence on inflation. The reduction on rates of the Federal funds results to a stronger demand for goods and service, which push the wages and other costs higher. This results to greater demand for materials and workers necessary for production. Policy actions influence the expectations of how the economy will perform in the future. It also helps in determining the future prices and wages and these can directly influence the current inflation rate.
The Federal Reserve implements monetary policies to ensure achievement of maximum employment, moderate long-term interest rates and stable prices of products and services. The governments require money to carry out its operations. The government raises money through taxation. The government uses the tax policy to achieve its goals. For example, the government allows homeowners to deduct the mortgage interest from the income. The government also borrows money by issuing government bonds. They encourage people to buy bonds and promise to pay back the purchase price and the interest (Brezina, 2012). The bond issuing happens through the Treasury Department. The monetary policies involve the lowering of the interest rates and increase the supply of money. People should borrow loans because of the low interest rates offered by the banks. This allows people to make big investments like houses and cars. When people pay less, in interest they get money to spend and this leads to an increased spending. The businesses benefit from the low cost borrowing and it encourages them to buy many products because of the low cost of borrowing. This leads to the creation of jobs because of the many investments.
The government spending and borrowing have a greater influence on the economy. America spends lots of money annually in its budget. This affects people in many different ways. Other expenditures create jobs reducing the unemployment rates. When the government spends money in infrastructure, it improves the economy. The shifts in the long-term interest rates affect the equity prices and the dollar exchange rate.
The government and the Fed can control the stability of the economy of the country by employing the fiscal and monetary policies. The policies may have some shortcomings for example the contractionary fiscal policies make money hard to get and very expensive to obtain.
Brezina, C. (2012). Understanding the Federal Reserve and monetary policy. New York: Rosen Pub.
Carlberg, M. (2010). Monetary and fiscal strategies in the world economy. Heidelberg: Springer.
Ip, G. (2011). The little book of economics: How the economy works in the real world. Hoboken: John Wiley & Sons.