Question

Do you think the Federal Reserve and Government (through fiscal policy) have taken all the policy actions they can to lower the unemployment rate and stimulate our economy? Why or why not? What other actions can they take?

Answer 1

Monetary and fiscal policies were used to counter recessionary trends in US economy. Federal Reserve that operate monetary policy helped economy to recover by lowering federal fund rate and on other side, government through its expenditure and tax policies infused demands in US economy.

Present unemployment rate is 4.1 % which is almost close to natural rate of unemployment. Economy at natural rate of unemployment is considered as economy with full employment. Further, growth rate is above 2 %.

Above data gives impression that US economy has recovered from recession and now Fed and government are no longer required to move with cheap policies. Continuation of loose policies would cause inflation in economy.

Hence, federal fund rate may increase in near future and similarly government must reduce is expenditure to reduce overall debt of government.