Macroeconomics concepts and applications

Fiscal policy of the United States is one of increased spending to help stimulate the economy. A good example of this can be seen with the President's proposal to spend $447 billion on encouraging employers to hire new workers and through government infrastructure projects. While at the same time, it is providing assistance to the states to help hire police officers, fireman and teachers. These different elements are important, because they are showing how the U.S. government's fiscal policy is focused on spending more to stimulate economic growth. (Stein, 2011)

Would you describe it as "expansionary" or "contractionary"?

This policy would be described as both expansionary and contractionary. Where, it is spending more money to stimulate the economy. While at the same time, it is relaying on dramatic reductions in spending. This is designed to provide support to those sectors of the economy that need the most assistance. (Stein, 2011)

How can American consumers influence decision makers on fiscal policies?

The way American consumers can sway policymakers is based upon their contributions to the economy. In those areas that are most vital, Congress has created legislation that was designed to encourage everyone to spend money. A good example of this can be seen with the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. In both cases, these regulations were allowing Americans to pay lower tax rates in an effort to help stimulate the economy by encouraging consumers to spend money. This is significant, because it is showing how various laws are enacted to boost household expenditures. (Fox, 2010)

Explain and discuss if and how this has changed over the past 5 years

Over the past five years, this has changed from: using tax cuts to stimulate the economy to taking more unorthodox measures. The most notable is: to have the government spending large sums of money in supporting consumer confidence (i.e. Cash for Clunkers). While at the same time, there has been an emphasis on bailing out those businesses that are deemed too big to fail (i.e. The banks and the automakers). These different elements are important because, they are showing how there has been a change in focus during the last five years. As government officials are willing to use any means necessary to stimulate the economy. (Dapena, 2009)

Part B

Describe when and why central banks buy either their own currency or the currency of another nation in an effort to control exchange rates.

The reason why central banks are buying currency is to influence the exchange rates of their money in relation to different trading partners. Where, they could aggressively buy in their own currency or they could be purchasing that of another country. The basic idea is that this will reduce the available supply of a particular legal tender. Once this occurs, it will allow them to effectively influence the exchange rate. ("Fed Intervenes," 2011)

What did the central banks do to stabilize the financial systems in 2007 -- 2009?

To stimulate the economy the central banks: lowered interest rates, they purchased their own debt / those of other entities and the loosened lending regulations. These different elements were designed to help provide some kind support to the financial system from 2007 to 2009. ("Fed Intervenes," 2011)

In an effort to stabilize the financial system how much money, in U.S. dollar equivalent and as a percentage of the country's GDP, did the European Central Bank, Bank of England, Bank of China, and the Federal Reserve put into the economy in 2008 and 2009?

The total amounts money that were placed into the economy between 2008 and 2009 was $1.5 trillion. In 2008, these figures were accounting for 2.1% of GDP growth or $957 billion. While 2009, saw $629 billion or 1.4% of the GDP rate. (Prasad, 2009)

How well did each country's efforts work at stabilizing the economy?

The efforts of the ECB, the Bank of England and the Federal Reserve helped to stabilize the economy. However, they did not provide significant economic growth. Instead, these regions went through a jobless recovery. While China, was able to resume above average economic growth during the recession. (Prasad, 2009)