Archive for May 16, 2010

How can Monetary Policy help people represented by Silver Cougars?

Angela Soracco of Silver Cougars of America has sent a letter quite concerned about the current inflation of 9%. Silver Cougars of America is an organization of senior citizens and they are being heavily relaint on Social Security day by day. How can the government implement monetary policies to help old seniors to lay off the inflation burden?

There are two ways to control the inflation. First is to increase the interest rate and second is to cut down the money supply on the market. First of all, by increasing the interest rate, many people will tend to save their money and not spend. This will lower the demand-pulled inflation to some degree. Also, by cutting down the money supply flowing through the market, the value of the currency will go up and therefore it will lower the inflation rate.

Nonetheless, there is one serious drawback to this policy. It will aggravate the negative economic growth and skyrocket unemployment rate in return. So, there is a trade off. Governments would look at the opportunity costs of implementing this policy and consider whether it will be worth of a try or a bad choice.

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How can Fiscal Policies be used for the workers like Joe Brezinski?

Joe Brezinski is one of those workers who are fired and are worried about losing their house. They’ve formed worker’s political action committee called Campaign for Job Security. How can fiscal policies can help the workers like Joe? There are several actions that the government can implement to solve this problem.

The unemployment rate is 12.5% and the inflation rate is 9%. Joe Brezinski is part of that unemployment rate and is suffering from high inflation rate. To satisfy the workers of Campain for Job Security, the government can implement strict fiscal policy by taxation.

The government can impose 30% increase in taxation for all businesses. However, they can cut the taxation to 0% for those firms that are willing to employ a large number of people. This way the government can get the unemployment rate down to 1~0%.

The government should also decrease the amount of government spending to reduce the debt and deficit. Also, they should pressure the foriegn firms to invest on factories and technology to boost up the domestic aggragate demand.

So adjusting taxation for businesses according to how many people they employ will be a great help to the unemployed workers like Joe!

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