What is the "current macroeconomic situation" in the U.S. (e.g. is the U.S. economy currently concerned about unemployment, inflation, recession, etc.)? What fiscal policies and monetary policies would be appropriate at this time?
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The current macroeconomic situation in the United States is rather mixed. The United States has officially been in an expansion since June of 2009, which was the trough of the “Great Recession.” However, the growth in this expansion has been relatively slow and relatively “jobless.” Therefore, the US is in an expansion but is still somewhat worried about unemployment and is not particularly worried about inflation. This means that it is likely that relatively loose monetary and fiscal policies are called for right now.
Usually, when a country is in an expansion, it needs to worry about inflation. This is because aggregate demand is rising which can cause price levels to rise. In such cases, tight monetary and fiscal policies are called for. The government should raise interest rates and sell securities in open market operations. It should raise taxes and/or reducing spending.
However, in our situation, the US should probably not engage in these types of policies. The US economy’s expansion is not very rapid. If the government uses tight economic policies to put the brakes on growth, it could plunge the economy back into recession. Therefore, the US should probably engage in monetary and fiscal policies that are mildly expansive. The US should continue with its quantitative easing and should probably not engage in fiscal austerity.
In short, the US economy is in an expansion but it is not so robust as to make us need to worry about inflation.
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