Government Manipulation of the U.S. Economy

The U.S. economy is always changing, in both positive and negative ways. However, there are methods of controlling it in order to make for a more steady and positive growth. This paper is focused on five major categories of the economy during the period of 2000-2001. These would include: monthly unemployment, Quarterly GDP, CPI, Discount Rate, and M2 money supply. The information will explain how each category looked like at the time, and what certain policies were put into affect while explaining what those policies mean.

Monthly Unemployment for 2000-2001 was lower than average, but reached 5% towards the end of 2001. Overall unemployment steadily increased during 2001. The highest point was reached in December of 2001 at 5.7%, while the lowest point was at 3.8% in April of 2000. Controlling unemployment is discussed later in the paper.

Quarterly GDP changed a good amount during 2000-2001. Although the numbers changed throughout both years, there was not a recession. A recession is when there are two consecutive down terms. If there was a recession, the easy money policy would be put into affect. This is discussed along with the Discount Rate.

CPI, or Consumer Price Index, was relatively steady during this period of time. There were only four months of negative CPI during 2000-2001. The highest point was in March of 2000 reaching 0.588, while the lowest point was found in October of 2001 at -0.337. This is the main measure of inflation in the United States, which is done by the Bureau of Labor Statistics (BLS).

The Discount Rate increased in small numbers during the first five months in 2000. This would most likely mean that the Fed (Federal Reserve System) was trying to build their reserves which would discourage commercial banks from borrowing from Federal Reserve Banks. This is known as a tight money policy when the overall objective is to tighten money supply to reduce spending and control inflation. The remainder of the year in 2000 the Discount Rate stayed at 6%, which is the highest point during 2000-2001.

In the year 2001 the Discount Rate was steadily decreasing. This indicated that the Fed was trying to get commercial banks to borrow more resources. This is part of the easy money policy, in which bank loans become more available as well as less expensive thus making them more attractive. This would increase demand and employment. The easy money policy is acted on when the economy is on or near a recession and unemployment is high.