ECON1010 - Policy Recommendations to Curb Unemployment in the USA

This policy brief analyzes the persistent issue of unemployment in the United States, using GDP and inflation indicators to diagnose the economic scenario. It recommends an expansive monetary policy, including reduced interest rates, and increased government spending or tax cuts to stimulate the ...Read More

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ECON1010, sem1 2019,
ECON 1010 – Macroeconomics 1
Policy Brief
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Part A: Diagnostics Analysis
Name of country: United States of America
Indicator 1: GDP
Long term
Comments and observations
The outlook of the United States economy is stable with regards to the indicators of the
economy. The key indicator for the economy of the USA is the GDP, which quantifies the
output of the country’s production (Tradingeconomics.com. 2019, pp1). The Growth
Domestic Product rate of growth is anticipated to remain between two percent and three
percent, which is an ideal range. Unemployment is predicted to persist at a natural rate.
There is not too much deflation or inflation. This is a Goldilocks economy (IMF Data.
2019).
Short term
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Comments and observations
The economy of United States rose by an annual rate of 3.2% in the initial quarter of the
year 2019, effortlessly defeating the expectations of the market of two percent enlargement
in the preceding period of 3 months. Contributions that were positive came from private
inventory investment (0.65 percentage points), personal consumption expenditures (0.82
percentage points), non-residential fixed investment (0.38 percentage points) and local and
state government spending (0.41 percentage points).
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Indicator 2: GDP Deflator
Long term
Comments and observations
The rate of GDP deflator in the USA is anticipated to be 1.80 % by the completion of the
first quarter according to Trading Economics analysis expectations and global macro
models. Looking at the future, the inflation rate is estimated to be at 1.80 in twelve-month‘
duration. In the long –run, the USA rate of inflation is anticipated to be around 1.90 %, in
the year 2020 according to the model of econometrics (Tradingeconomics.com, 2019, pp2).
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Comments and observations
The annual GDP deflator rate in the United States went up by two percent in April 2019
from 1.9 % in the preceding month, just below the predictions of 2.1 %. The inflation rate
was greatest since last November, directed by reverberation at the prices of energy (OECD
data. 2019). The key rate of inflation rules out items that are volatile like energy and food,
bordering up to 2.1 % from 2 % in March. The rate of inflation in the United States
averaged at 3.26 % from 1914 until 2019, attaining an all-time high of 23.70 % in June of
1920 plus a record low of negative 15.80 % in June of 1921 (World Bank Open Data | Data.
2019).
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End of Part A
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Part B: Policy Brief
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Briefing for the prime minister
Subject: Curbing the Persisting Issue of Unemployment in the Economy of the United
States
Executive summary
The long term GDP indicate that the rates of unemployment are likely to persist in the
United States. Following this trend of unemployment in the United States, there is a need to
come up with strategies to curb the unemployment rates from persisting. The GDP rate of
growth is predicted to remain between two percent and three percent. Forecasting at the
future rate of inflation in the USA is approximated to reach 1.80 % in the twelve-month
duration.
Recommendations
The government of the USA should implement an expansive monetary policy of the
country’s reserve. Reduced rates of interest make it simple for citizens to borrow what they
require to create their own employment (Barro, 2017, pp 101). Implementing reduced rates
of interest enable businesses to get loans. The government of the United States of America
should increase spending or cut taxes to trigger the economy. This policy is slower but once
executed it becomes effective.
Economic rationale
The economy of the United States has been battling with the issue of unemployment. The
situation has continued to persist according to the long term GDP of the country. The policy
brief is aimed at addressing the persistent issue of unemployment in the economy of the
United States. According to the persisting nature of unemployment in the United States,
there is a need to create more job opportunities for the economy. The remedy to
unemployment is to create more positions. Normally, an economic rate of growth, which is
healthy, is required to inhibit the rate of employment that is high. In case the level of
unemployment reaches above six to seven percent and remains there, this implies that the
economy is unable to establish adequate new jobs (Phillips, 2018, pp 283).
According to the Bureau of Labor Statistics of the United States, reports the yearly
percentage of people who are unemployed by the labor force as far as the 1929 market
crash. The report indicates the failure and the success of the monetary policies through the
years because of the influences rate of unemployment. The monetary and fiscal policies
recommended are effective strategies for dealing with the issue of unemployment in the
economy of the United States.
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Fiscal policy
The rate of inflation in the USA is anticipated to be 1.80 % by the completion of the first
quarter according to Trading Economics analyst expectations and global macro models.
The fiscal policy can be more efficient once implemented. Moreover, it offers the much-
required confidence that government will turn things around (Cantor and Land, 2015, pp
317). Unemployment can be reduced through the fiscal policy by assisting to increase the
economic growth rate and the cumulative demand. The government will require to follow
the expansionary fiscal policy, this entails increasing government spending and cutting
taxes. Reduced taxes increase the income that is disposable for instance VAT cut fifteen
percent in the year 2008 and thus assists in intensifying consumption resulting in higher
aggregate demand. An intensification of the aggregate demand results in an increase in the
Real Growth Domestic Product for as long as there exists a spare capacity in the economy.
In the case of organizations in the United States produce more, there will be an escalation
in demand for employees and thus decrease unemployment that is demand-deficient.
Moreover, with strong economic growth and higher aggregate demand, few organizations
will run bankrupt implying fewer losses of jobs
Monetary policy
The rate of inflation in the USA is anticipated to trend around 1.90 % in the year 2020,
according to the models of the econometrics. The low rates of interest enable businesses to
borrow for less. That provides the financial capital to recruit adequate employees to meet
the elevating demand.
Monetary policy is often associated with macroeconomic performance standards that seem
desirable; a stable price level, a low unemployment rate, and economic growth. Therefore,
it is sensible to conclude that the objectives of the monitory policy are supposed to
cooperate the avoidance of deflation or inflation, maintenance of full employment and the
maintenance of full employment. However, the objectives each of which are attractive by
themselves can clash with each other. A monetary policy that pursues to minimize inflation
may weaken economic growth and increase unemployment. The economy of the United
States has been battling with the issue of unemployment. The situation has continued to
persist according to the long term GDP of the country. To undertake a monetary policy that
is expansionary, the government of America can purchase bonds, thus maximizing the
supply of money. According to the persisting nature of unemployment in the United States,
there is a need to create more job opportunities for the economy. The remedy to
unemployment is to create more positions for employment.
Besides, the government of USA can implement supply-side policies for decreasing supply
side unemployment, which include training and education, minimizing the trade unions
power, fostering the flexibility of labor market, workers subsidies, severe benefit
requirements, and improved geographical mobility. It is debated that greater unemployment
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structural rate in the United States is because of labor markets that are restrictive that
dampen organizations from recruiting employees in the initial place.
End of Part B
References List
Barro, R.J., 2017. Unanticipated money growth and unemployment in the United
States. The American Economic Review, 67(2), pp.101-115.
Cantor, D. and Land, K.C., 2015. Unemployment and crime rates in the post-World War II
United States: A theoretical and empirical analysis. American Sociological Review,
pp.317-332.
IMF Data. (2019). Retrieved from https://www.imf.org/en/Data
OECD data. (2019). Retrieved from https://data.oecd.org/
Phillips, A.W., 2018. The Relation Between Unemployment and the Rate of Change of
Money Wage Rates in the United Kingdom, 1861–1957 1. economics, 25(100),
pp.283-299.
Tradingeconomics.com, 2019.United States GDP Growth Rate | 2019 | Data | Chart |
Calendar | Forecast. Online pp.1-2
Tradingeconomics.com, 2019.The United States Inflation Rate | 2019 | Data | Chart |
Calendar | Forecast. Online pp.1-2
World Bank Open Data | Data. (2019). Retrieved from https://data.worldbank.org
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