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...

What is the "current macroeconomic situation" in the U.S. (e.g. is the U.S. economy currently concerned about unemploymentinflation,recession, etc.)? What fiscal policies and monetary policies would be appropriate at this time?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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At this point, the economy of the United States is, so far as we know, still in an expansion.  However, we are not really concerned with inflation as you might expect us to be after a long expansion.  Instead, the expansion has been relatively weak and inconsistent and so we are still more worried about unemployment than about inflation.  That means that a relative easy monetary policy is still appropriate as is an expansionary fiscal policy.  (Please note that not everyone will agree about the monetary and fiscal policies that should be pursued.)

The United States is currently in an expansion and has been since June of 2009.  It is true that the most recent numbers say that the economy contracted slightly in the first quarter of 2015, but since we usually define a recession as two straight quarters of contraction, we cannot yet say that a recession has started.  Therefore, it is probably correct to say that our economy is still expanding.

However, our economy has not expanded in a various vigorous way since 2009.  Most importantly, unemployment has not dropped as much as hoped and wages are not really going up very strongly.  This means that we are not in much danger of inflation.  We are more concerned with avoiding a recession (and unemployment) than with avoiding inflation.

If we are concerned about inflation, we should follow an easy monetary policy.  We should keep interest rates low and should engage in buying government securities on the open market.  In terms of fiscal policy, we should not raise taxes and we should not cut government spending (again, this is somewhat controversial).

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