Econ 545 You Decide

Mr. President:

I have consulted with four of my colleagues to help me determine what the best course of action is for you to take to help fight the deep recession the nation is currently experiencing. In order to fight the high rate of unemployment along with drop in inflationary rate at -2.4% you, as the President, will need to work with Congress to use fiscal policy and the Federal Reserve will need to use monetary policy.

Supporting more of a monetary policy approach is Raymond Burke, Economic Consultant, who recommends that the President lower interest rate to until the nation is out of the recession. While I agree that lowering the rate will help to pull us out of the recession, I disagree that President can make this decision when it can only be decided by the Federal Reserve Bank can lower the interest rate. It is not within the President’s or Congress’s power to reduce the rate as it is a monetary policy. Patricia Lopez, Consultant to the Federal Reserve, recommends the Fed to not adjust interest rates, but rather sell bonds and raise the reserve requirement. Allison Tanney, Economic Consultant, also recommends raising the reserve requirement, but she suggests raising the discount rate, along with buying bonds. I strongly recommend the Fed not be asked to adjust the reserve requirement as this should only be done as a last resort. Rather, I recommend that the Fed should lower interest rates and buy bonds. Of course, these decisions remain solely with that of the Federal Reserve Bank.

Since you cannot control the Fed, let’s focus on what you can have some input on; the fiscal policy. Kathy Lee, your former advisor, recommends raising taxes and reducing government spending. This would not be the correct course of action to take during a recession and I recommend that you decrease taxes and increase government spending to encourage increased spending and output due to the spending multiplier. The voters will like as it improves their income,...