Economic Situation U.S. Compared (5) Years Ago. Essay

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economic situation U.S. compared (5) years ago. Include interest rates, inflation, unemployment analysis. 2.Propose (2) strategies federal government implement encourage people spend money order create employment opportunities.

Q1.Analyze the current economic situation in the U.S. As compared to five (5) years ago. Include interest rates, inflation, and unemployment in your analysis.

The unemployment rate in January 2012 was 8.3%. The relative improvement in the economy has caused many to pressure Fed chairman Ben Bernanke to raise interest rates above their current record lows to curb inflation, although Bernanke still feels that the economy is fragile enough to justify keeping rates extremely low. "The unemployment rate has fallen for five straight months and employers have added an average of 200,000 net jobs per month from November through January" (Crustinger 2012). Until recently, the Fed has believed that there has been little risk of inflation due to an excess in the money supply, given the softening economy, although higher gas and milk prices indicate that inflation is still a risk due to other systemic factors. "The IRS applied a 1.4% inflation rate for 2011 tax brackets and a 0.18% inflation factor for 2010. As anyone who shops or drives can tell you, inflation has increased this year. The formula the IRS uses is expected to be based on a 3.8% annual inflation rate, according to tax publisher CCH" (Block 2012).

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Inflation in January 2011 was 2.93% (Historical inflation data, 2012, Inflation data).

However, despite the brighter news, the economy has still not fully recovered. In January 2007, before the credit crunch, unemployment was 4.6% (Unemployment rates by demographics, 2007, BLS). Inflation was 2.08%, which is substantially lower when one considers the economy was healthier yet costing people less in terms of basic necessities. Interest rates, however, were much higher -- nearly 5% -- which was bad news for borrowers, but good news for savers (Historical inflation data, 2012, Inflation data; January, 2007, Treasury Direct)

Q2.Propose two (2) strategies that the federal government could implement that would encourage people to spend more money in order to create employment opportunities.

Historically, lowering interest rates is the traditional method used to encourage borrowing. Making the borrowing of money cheaper encourages consumers to make larger purchases, given that it is cheaper for them to do so than when interest rates are high. However, when people remain skittish about loosing their jobs, they are less apt to borrow money. Spending money on government programs, such as infrastructure projects, can give people jobs and creates a new influx of purchasing power in the marketplace. This stimulates private as well….....

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