Economic Critique Paper
Learning Team C - Nickolas Keiper, Victus McDaniel, & Michael Walker
October 21, 2014
Dr. Thomas Seel
We, a group of international reporters have been tasked with describing and critiquing the current state of the U.S. economy. To do this we will examine unemployment, future expectations, consumer income, and interest rates. Furthermore, we will identify existing effects of economic factors on aggregate demand and supply, and identify fiscal policies that are currently being recommended by government leadership. Utilizing this information, we applied the theory of Keynesian and Classical two well-known economist to evaluate ...view middle of the document...
This is only obtained by providing high-quality goods and services at a reasonable price.
Consumer Income is arguably the most important factor here. More and more Americans are holding on to their hard-earned money despite slim increases in earnings. Since 2011 medium household income has risen 3.8% with the average household earning $51,000. However, that does not change spending habits particularly during the months of September through December.
Consumers reduce spending due to higher spending in August/September for summer vacation, clothing for school, school supplies, and college tuitions. Then three months later Christmas approaches leading to discretionary spending. With consumer spending a major driver of the U.S. economy, changes in average spending can reflect how the economy is doing. Currently, Americans are spending more today than they did in 2008. So, we agree that current consumer income is slowly rising and consumers are not making major purchases and controlling spending due to an unstable economy.
To have an understanding of the current state of Interest Rates, one must look at who sets the current American interest rate. The central bank of the United States is the Federal Reserve System (FED) or the Federal Reserve, even though the Federal Reserve is an independent government institution it is owned by a number of large banks.
The Board of Governors is the governing body of the Federal Reserve; the Board of Governors has seven members who are appointed by the President of the United States. There are twelve regional Reserve banks that have five representatives; who along with the other seven make up the Federal Open Market Committee.
The responsibility of the Federal Open Market Committee is to supervise open market operations through monetary policy; while the Federal Reserve has various responsibilities including safeguarding the stability of the United States’ financial system, preventing or limiting inflation and deflation (price stability), maximizing employment, setting long-term interest rates, regulation of the private banks, and strengthening the United States’ position in the global economy (Global-Rates.com, 2014).
The current interest rate in the United States was last recorded at 0.25 percent; the interest rate in the United States averaged 6.04 percent from 1971 until 2014, reaching an all-time high of 20.00 percent in March of 1980 and the current low of 0.25 percent in December of 2008 (Trading Economics, 2014). If people have a lower interest rate they can borrow money to purchase things such as houses and cars. This gives people more purchasing power, which in turn helps banks loan out more money and keep interest rates low. Lower interest rates allow businesses to undertake more investment projects. Since investment is one component of aggregate demand, the quantity of aggregate demand will increase (Colander, 2013). Consumer spending is a large component of aggregate demand in the United...