Economics: Application of Concepts an Analysis of Essay

Economics: Application of Concepts

An Analysis of the Economic Situation in the U.S.

In the last five years, we have seen the U.S. economy expand but at a pace that is seen as being relatively moderate. In conducting an analysis of the current economic situation in the U.S., I will largely limit myself to inflation, interest rates, and unemployment.

Although the current economic situation is better than it was five years ago, there are signs of uncertainty that continue to suppress economic activity. This is more so the case taking into consideration the prevailing unemployment rates. For the most part of year 2008, the unemployment rate was stuck between 5% and 6% (Bureau of Labor Statistics, 2013). As at January this year, the nation's unemployment rate stood at 7.9% (Bureau of Labor Statistics, 2013). This is an indication that in comparison to five years ago, the total unemployed labor force increased significantly.

Standing at 1.6% on January 1st of this year, the U.S. inflation rate during a similar period five years ago stood at 4.3% (Multpl, 2013). The relatively high inflation rate five years ago can be attributed to the adverse effects of the 2007 -- 2010 financial crisis. It is however important to note that in the recent past, the cost of imported raw materials has fallen and labor costs have stabilized. This has helped rein in inflation.

When it comes to interest rates, it should be noted that in an attempt to stir economic activity and neutralize the effects of the recent downturn in economic activity, the Federal Reserve has in recent times attempted to keep interest rates low through the maintenance of near zero interest rates (Board of Governors of the Federal Reserve System, 2012). In comparison to five years ago, the current performance of the stock market as well as GDP growth can be regarded impressive.

Strategies the Federal Government Could Implement to Encourage People to Spend More

The federal government could make use of a number of monetary and fiscal policy tools in an attempt to encourage individuals to expand their spending. In this scenario, I propose two fiscal tools that the government could utilize.

To begin with, the federal government could in this case increase its spending. This would ordinarily be through an increase in the acquisition of goods and services including but not limited to expenditure on defense and health, construction of military barracks and roads, etc. If the said spending leads to the creation of more jobs for those who happen to be unemployed, then the federal government would have succeeded in stimulating spending.

Secondly, the federal government could decrease taxes in an attempt to stimulate the demands for goods and services. For instance, decreasing direct taxes would have the effect of increasing the disposable income of individuals (and hence their demand for goods and services).

The above approaches are in some quarters seen as being effective in stimulating aggregate demand. However, it has been argued that tax cuts are more rapid than increased government spending when it comes to the stimulation of aggregate demand (Gwartney et al. 2010). Spending projects as the authors point out are in most cases lengthy processes and in that regard; their impact may not be felt immediately.

An Analysis of a Past Monopoly Situation

AT&T for most of the 20th century operated as a monopoly (Samuelson and Nordhaus, 2010). Indeed, the company had entered into an agreement with the government in a move that allowed it to act as a monopoly sanctioned by the government. For some time, this offered the company reprieve from the scrutiny of regulators. However, in 1974, a suit against the company was filed in what eventually led to the mandatory splitting of AT&T into seven different entities. In this particular instance, the Department of Justice according to Samuelson and Nordhaus (2010) accused the company of monopolizing "the regulated long-distance market by anticompetitive means, such as preventing MCI and other carriers from connecting to the local markets…" The company according to the authors was also accused of monopolizing "the telecommunications-equipment market by refusing…