Positive effects seemed to stem from this initial implementation leading the Federal Reserve Bank to put this policy back into action in the fourth quarter of 2010. This decision was made after the country came face to face with the beginnings of another economic downfall. Purchasing securities to lower interest rates may sound like a suitable answer to the rising economic crisis but a look back at statistical evidence will show that there is a lack of positive sustainable results from quantitative easing. An article in the Economist reveals that the Federal Reserve Bank’s main goal in implementing quantitative easing is to target investment by increasing the amount of money available to banks for lending (The Economist, 2014, para. 3).
Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a recession and needs a type of stimulus package, the Fed may attempt to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nation's economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in hard times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March.
What are the main reasons as to why this recovery has been so lackluster? The first reason is that the 2007-2009 recession was caused by the housing bubble and the collapse of the housing industry, which normally kick-starts recovery. After the 2007-2009 recession, since the housing prices are unlikely to return to previous levels, the economy is taking longer to recover. The second reason is that globalization has caused domestic employment to rise slower than if all the increase in employment goes to domestic hiring. (Joel, 2013) Compared to the past, we have more imports than exports (Olney, 2013); as the economy recovers, a greater part of the increase in GDP goes to foreign economies instead of our own.
OECD Economic Surveys: United States, pp. Issue 13, p53-79,. Phelps, E. (1994, June ). The Origins and Further Developement of the Natural Rate of Unemployment. Retrieved from http://www.columbia.edu/~esp2/memoir1.pdf Tcherneva, P. (2011, July 20).
As a result of the Great Recession of 2007 to 2009, the United States government implemented various fiscal policies in an effort to stimulate the economy. How the government responded as well as how those responses will affect the U.S. economy into the future are the focus of a proposed research study. In order to ensure an appropriate focus for the proposed research study, problems in existing literature must be evaluated. This paper is structured as follows. In order to better understand the Great Recession, the first section includes an examination on some of the key causes.
Economic growth, money growth, and inflation are highly related. In the graph displayed above we can see China’s figures over the years 2003-2012. Inflation increases with money growth. In years of financial distress, e.g. during the last financial crisis (here: economic growth numbers hit the decline stage in 2007), especially to be noticed in the year 2009 in the displayed graph, people feel more reluctant to invest their money and tend to hold on to their limited financial assets.
Retrieved from http://www.marketresearchworld.net/component/option,com_frontpage/Itemid,67/ Market Research, competitive intelligence, industry data, statistics, forecasts, US and global trends, corporate profiles, business information; reference books, executive mailing lists from Plunkett Research. (n.d.). Retrieved from http://plunkettresearch.com/ U.S. Bureau of Economic Analysis (BEA). (n.d.). Retrieved from http://www.bea.gov/ U.S. Securities and Exchange Commission | Homepage.
Retrieved from: http://www.buzzle.com/articles/causes-of-unemployment.html Trading economics, (2011). United States Unemployment Rates. Retrieved from: http://www.tradingeconomics.com/united-states/unemployment-rate Visual economics, (2010). A Decade of Unemployment. Retrieved from: http://www.visualeconomics.com/a-decade-of-unemployment/
According to the Commerce Department, the total value of goods and services slowed to 2.3% with a previous rate of 1.8% last year. The gradual decrease in growth indicates that the economy may be reducing to a more sustainable pace, and avoid another intererst rate increase from the Fed. The increase in employment costs may yet sway the Fed to to raise interest rates, but July will be decisive. Consumer consumption has fallen from 6% in increase in 1998 to 4% in 1999. The fall in consumer consumption has had its toll on the GDP as it too has slowed.
In 2007, real GDP will increase slightly in comparison to the previous year. The MBA states the percent change in annual rates will be 4.4 in 2004, 3.8 in 2005, 3.3 in 2006 and 3.5 in 2007. According to CBO, real GDP will decrease in 2005 compared to 2004; GDP will decrease further in 2006 and continue to decrease during the 2007 through 2010. The CBO states the percentage change of real GDP was 4.4 in 2004, will be 3.8 in 2005, 3.7 in 2006 and 3.3 on average for the years 2007-2010. The Blue Chip consensus believes real GDP will decrease in 2005 compared to 2004, and continue to descend for the next two years, 2006 and 2007.