Money Economy Example For Free - Free Essay Example

Persistence problems in the U.S. deal with the sluggish employment growth, the slowdown of household consumption, and the limitations in furthering the fiscal policy. Also, a combination of excessive liquidity, low interest rates, high leverage, poor risk management, excessive risk-taking had possibly let too many assets, emerging market debt prices. Even though the US is the richest country it does (like any other country) have issues that hurt our economic performance. Monetary policy plays a key role for the development of our economys rate of inflation which is the Central Banks responsibility. The Fed has 3 primary functions which are to regulate the banking industry, act as Bankers Bank, and most important conducts monetary policy which the FOMC controls money supply. If the central bank fails to do so inflation can cause a plethora of problems. In todays economy, targeting the levels of real variables and trying to pursue detection of where the unemployment rate will settle may take away from lowering inflation. GDP and the unemployment rate fluctuate throughout each year that it could raise or fall immediately and inflation could creep up even when demand is settle. William Poole shares his example; he states, â€Å"Weve seen substantial wage increases in the airline industry; if airlines are to be profitable over time they will have to recover those costs through some combination of productivity gains and price increases, even though travel demand is not currently strong.† The higher wages in the airlines industry are directly related to inflation rising. Wages and salaries usually keep up with inflation. For instance, 2% inflation means wages will increase by 2%. In 2001, the Fed Fund rates increase 11 times to a rate of 1.75%. The following year the economy recovered but the faltering in the US recovery in the fall of 2002 and the risk of a double dip recession led the fed to reduce the Fed Funds to as low as 1%. A jobless re covery had then emerged during and continued after the war with Iraq. Inflation started to increase with growth of output and the jobs that had picked up. Will the Fed Funds rate and will that cut prevent a hard landing? Another U.S. economy vulnerability is people are saving-less and debt is a stand out. The high levels of household indebtedness (mortgages, consumer credit, etc.) with debt service costs now rising because of a credit crunch. There are a number of negative shocks such as: falling home prices, and falling home equity withdraw. Housing recession and its first fall in home process has been since the 1930s. The housing recession to worsening rather than bottoming out. The US and global recessions are associated with oil prices rising. After the Iraq war oil prices remained the same in 2004-05 because of high demand from the US and China. The issues in 2004-05 with oil prices and energy led to concerns about stagflation (low growth plus inflation). Each barrel of o il was about $70.00 and either stayed the same or increased for several months. The reason why the oil shock didnt lead to an economic slowdown was the high demand rather than stagflation supply shocks. Will the recent high oil prices carry over to a global slowdown in 07-08? Many times today we look at the American economy and we do an internal SWOT analysis, one of the things I have learned is the U.S. economy is not the only successful economy. There are many other nations that have thriving economies that are showing tremendous growth. Africa is one the up and coming economies these days after many years of stagnation Africa has showed potential for growth since 2001 there has been around 4.9% growth annually in domestic profit. You may ask yourself about uncertainty despite the optimism you may feel about investing in the African economy you have to notice that it is experiencing the highest growth since the 1970s.The basic economic question has to be brought to the forefron t consumers are getting more involved with the everyday structure of business and when and why they do well. We have to answer the question of why there is a large economic difference between south and North Korea, East and West Germany, Mainland China and Hong Kong, these are situations that we have to explain and without the theories and studies the would be no clarity. These countries have to allow the government to interfere and even things out with the intentions of growth for the whole nation and not just tourist destinations, and prime factory areas. This class has taught me that equilibrium is basically left up to the consumer and the person offering the service they have to come to an agreement on the amount of service rendered and an accepted medium of exchange that is best for both parties. Entrepreneurship is a staple of American business it allows business owners to be open to innovation and not be afraid to have some uniqueness to the products or services offered. Asia is one of the most thriving economies but what we fail to see that since 1998 the have been in a severe recession, they also have instituted an IMF bailout plan was brought forward to help the situation. The thing is that the IMF plan has done more bad than good because of the employment conditions have gone down causing the economy participation rate to go down also. North Korea has many opportunities for growth they have an abundance of coal, and other minerals and metals. North Korea has been a very good example for other nations alike. Korea has done many things to equip themselves for the future the companies they develop are made to last, and continue success for many years to come. The U.S. has set the tone copying the central bank. What the Fed can do, at least to some extent, is prevent problems in specific sectors from becoming general problems. That is exactly how to view monetary policy this year. Tech investment is down, but housing investment and consumpti on have been maintained pretty well. Declining interest rates have certainly assisted in supporting aggregate demand. This is the whole story behind the U.S. economy and it has been very successful in doing this, but there are so many other things that have influenced the success experienced by the U.S. economy. China is another one of the strong economies of today China uses a strategy that calls for stability as the main objective, and today the communist party is putting economic stability in the forefront which also allows for great results when a company thinks of the long run instead of quarterly they have a tendency to perform better. Now we have to continue to remember that no matter what your plan is the goal has to be that supply will have to meet demand. I was looking at monetary policy for the U.S. and I read that investors fear turmoil in the credit sector, this means that all the financial institutions will all take a cut because of the failure of the borrowers t o repay loans given by the credit agencies. In whole one of the things I have learned is that many nations are just like a business they need accountants and economist to come in and monitor operations as far as spending, loans, and balancing all accounts .Its the failure of the nation in a whole that have caused this its nothing we can say specifically was caused by any one group of people it is a hard fought battle for the Fed and the government to get this deficit balanced. In conclusion, along with all the advantages of having one the best economies comes with disadvantages as well. The recent high oil prices for the US will lead to a global slowdown and were still trillions of dollars in debt with the number still growing. The actions the US economy takes effects not only America but other countries as well such as: foreign market, real variables, nominal variables, fiscal policy, and household consumption. Everyone knows that the U.S. is the strongest economy but as of late ly other countries economies are rising. For instance countries like Africa, China, and Germanys domestic profit growth continues to rise with time. More countries are coming to see that capitalism might just be the road to riches, and a route that the U.S. has been traveling for a number of decades.