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Monetary/Fiscal Policy

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Government monetary and fiscal policies change all the time. These policies areinstalled or fixed for the betterment of trade, inflation, unemployment, thebudget, or many other economic factors. In my opinion, it seems like two peoplehave the majority of the control when it comes to forming these policies. Thefirst person who influences these policies is President Bill Clinton whoproposes tax cuts, to balance the budget (Clinton’s budget proposal should begiven to congress soon), minimum wage increases, or other legislation to improvethe economy.

The second person who influences policy is the Federal ReserveBoard Chairman Alan Greenspan who can truly destroy our economy by a slightmiscalculation. Greenspan is so influential that the mere speculation of hismaking a move can cause panic buying or selling in the open markets. AlanGreenspan has the power to increase or decrease the money supply by changingreserve requirements, by changing the discount rate, or by buying or selling U.S.

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Securities over the open market.

The major governmental problem is trying to balance the budget.

The UnitedStates government is currently in debt $5,262,697,717,000 as of February 7. Thisnumber grows about $10,000 per second(see charts 2,3,and 7). President Clinton,Chairman Greenspan, and Congress are all working towards a balanced budget bythe year 2002. As many economists explain , the need is for legislation to keepthe budget balanced for years to come and not look for a quick fix to balancethe budget for only a few months to quiet critics. The government takes stepsconstantly to balance the budget; economists say that the chances of inking adeal this year are better than ever.

President Clinton has currently proposed an offer of $100 billion in tax cutsthrough 2002. These cuts are aimed at giving relief to middle class citizens.

A few of his other proposals include: $500.00 child tax credit, tax deductionfor post high school education, increasing the limits of individual retirementaccounts, and elimination of the capital gains tax. Despite these cuts, hestill believes a balanced budget will be achieved by the year 2002.

Greenspan, in an effort to shave billions of dollars off the deficit, explainedto Congress that they are overpaying Social Security recipients. Greenspan’stestimony sets the stage to successfully balance the budget. His reasoningbehind these allegations is that the cost of living is overstated and he isurging Congress to correct the problem which would affect inflation, grossnational product, and the budget.

InflationThe fourth quarter results have been calculated and the economy is in greatshape. The Commerce Department released fourth quarter numbers which show a4.7% annual growth rate and a 1.8% rise in inflation.This 1.8% fourth quarterrate is lower than the 2.1% third quarter rate. The gain in the fourth quarteris due to higher exports and higher consumer spending. The fact of the matteris that 1996 ended with strong growth and no problem with inflation(see chart 6).

Many economists showed concern over steady inflation growth and are worriedabout 1997. They believe investors may be tricked because the economy is reallyhot and it is just a facade. Many are concerned that the impressive growth in1997 could start a dangerous domino effect that could push up inflation.

Demand and production are very strong which is always a good point for economicgrowth. Many retailers moaned about a slower Christmas buying season butconsumer spending showed a rise of 3.4%. Many analysts expected unfortunateproduct overloads. It does not look like businesses will be stuck trying toclear out their stock rooms. As for 1997, I get mixed reactions. Manyinvestors seem split about their predictions and are not too sure about thefuture.

Where does Alan Greenspan, chairman of the Federal Reserve, stand on inflation?As indicated earlier in this report, a few weeks ago, he urged Congress torevamp the method by which the government measures inflation. He believes thatthe consumer price index overweighs inflation by approximately one percent peryear. He pointed out that the cost of living increases are overstated and urgedpoliticians to appoint a commission to correct the problem.

Gross National ProductThe gross national product is a measure of the market value of goods andservices produced during a specific time period. The GNP is the most widelyused factor of economic performance. GNP are estimates that are prepared aftereach quarter. The GNP estimate after the fourth quarter in 1996 was .GNP can be calculated by adding the total cost of supplying the goods andservices, including the income of the producer.

An average breakup of Real GNP can be divided as such: 64.5% from consumption ofgoods and services, 19.8% from government purchases, 16.6% from gross investment,and -0.9% from net exports. It is tough to keep up with technology and theproducts that consumers spend their money buying. It is tough to tell if theconsumer has the money to buy luxury items or necessities, but there are manygoods and services from here and abroad that are readily available and worthlooking into.

Domestic demand is rebounding and even foreign demand is picking up for ourproducts. Many manufacturers are feeling the pressure in their order books.

Unfilled orders and consumer demand are increasing and forcing producers tolengthen their workweeks; increase their payrolls, and speed up production.

Overall orders so far as the fourth quarter can tell are well above their thirdquarter average. Orders for capital goods are high as well as durable goods,which include long-lasting items like air-conditioners, microwaves, stoves, andairplanes. This rebound is why the new year looks to be promising. Consumershave a to do with the manufacturing upbeat look.

Despite the majority of products being goods and services, Government spendingalso makes up a large part of our GNP. Military is a major spender and with thecompetition over B-2 bombers, money is being exchanged in large amounts.

President Clinton is also expected to propose a 20% increase in spending foreducation which would raise the total to some $51 billion. Other examples ofGovernment spending which will be addressed in Clinton’s Budget for 1997 will beInternational Affairs, Transportation, and Medicare(to name a few).

The prospect of stronger world growth clearly is a plus for exports, especiallycapital goods. Foreign sales of capital goods have risen 10.4% from a year ago.

Cheaper exports means cheaper imports will allow foreign goods producers toexpand their already record share of the U.S. market.

UnemploymentThe unemployment report is released periodically and it contained a big surprisefor many economists in 1996. Over the past months the reports showed the economydoing quite well. This economy has been doing so well that some economists wereworried about reaching full employment rather quickly. Although the joblesswould love that to happen, full employment would lead to high inflation anddestruction of the economy. The consensus on Wall Street was that the Fed wouldhave to raise rates until word got around about the report. By day’s end, themainstream were afraid of an economy that will grow so slowly that rates willhave to go lower.

The current unemployment rate is 5.3%. President Clinton is trying to create newjobs to get everyone earning real wages. People want to know that he is openingjob opportunities but he also does not want full employment. This is a primeexample of politics. Tell people what they want to hear but do not let theeconomy stagnate. I guess that is his hidden agenda. In effect, Clinton plansto strengthen employment and business investments in poverty stricken urbanareas. He plans to triple funds to lend to city banks in order to fostereconomic development in poor neighborhoods. He will also try to tripleemployment in public housing projects through a $10 million project involvingHUD, Rockefeller Foundation, and Chase Manhattan.

Many Southern states, seven to be exact, are about to cut their unemploymentinsurance taxes by hundreds of millions of dollars. The Southern economy hasseen tremendous growth and people are forgetting the bad economic times. Theregion has also been adding jobs at a constant pace. Unemployment has droppedto record lows in some of these states. This risky act may spell disaster.

New HappeningsPresident Clinton sent his opening proposal to congress in his attempt tobalance the budget by 2002. Economists say Clinton is right on track with hisproposals. Areas that are being hit hard are: Medicare, Defense, and Welfare(check chart one for breakdown). Also new, the unemployment breakdown came outand the economy has not lost a step. Despite the unemployment rate increasingfrom 5.2% to 5.3%, there is no fear of inflation. Payrolls also showed growthwhile the labor force expanded and the workers’ hours decreased. Category: Business

Cite this Monetary/Fiscal Policy

Monetary/Fiscal Policy. (2018, Nov 11). Retrieved from https://graduateway.com/monetary-fiscal-policy/

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