ECON312 Week 7 Assignment Paper 2019

Minimum of 4 scholarly sources

Introduction

There are several problems that every economy must contend with. The culmination of these problems is often a recession or an inflation, each of which requires an extensive policy prescription. A recession is technically defined as two consecutive periods of negative growth in real GDP. The National Bureau of Economic Research (NBER) which dates U.S. recessions defines recession as “a significant decline in economic spread across the economy, lasting more than a few months, normally in real GDP, real income, employment, industrial production and wholesale-retail sales.” (NBER, 2008, para. 2). Inflation is measured by the Bureau of Labor Statistics (BLS) as an increase in the overall price in the economy. The inflation rate is the percentage change in the prices of goods and services from one period to the other. To measure the percentage change in the general level of prices, economists use the GDP deflator method or the Consumer Price Index (CPI) method. It is important to note that as the general level of prices rise, the purchasing power – or value – of money diminishes, and as the general level of prices decline, the value or purchasing power of money rises.

When an economy is going through recessionary or inflationary periods, two key policy prescriptions are used to deal with either problem are Fiscal Policy and Monetary Policy. Fiscal Policy is often initiated by the executive branch of government and approved by the legislative branch of government. The main tools of Fiscal Policy are Taxes and Government Spending. Monetary Policy, on the other hand, is conducted by the Federal Reserve Board. The main tools of Monetary Policy are Required Reserve Ratio, Discount Rate, and Open Market Operation.

A recessionary gap (see Figure 1) occurs when the full employment equilibrium in an economy falls short of potential GDP.

Below full employment macroeconomic equilibrium graph with price level on y-axis and real GDP on x-axis

Figure 1: Below Full Employment Macroeconomic Equilibrium. Reprinted from Bade & Parkin (2018, p. 545).

Activity Instructions

For this assignment, complete the following:

If you were an economic advisor to both the President and the Chair of the Federal Reserve Board, what Fiscal Policy and Monetary Policy recommendations would you make to deal with a recession?

In the literature on Health Economics, there is a significant amount of research on the impact of the Great Recession (2008-2009) on the nursing profession. If you were the Health Policy Advisor to the President, what specific recommendations would you make to the President to minimize the effects of recessions on the nursing profession?

In the implementation of Fiscal and Monetary Policies, discuss the limitations of these policies and explain how the limitations are likely to affect the effectiveness of your recommendations.

Note: In making the recommendations, provide clear and concise channels of transmission of the policy from its implementation to its effect on Aggregate Demand or Aggregate Supply. Providing channels of transmission shows the ripple effect of an event on one or more variables in the process of achieving an ultimate Macroeconomic objective.

Example

Sample Question: What is the effect of an increase in U.S. Exports?

Sample Answer: An increase in U.S exports will increase Business Investments (I) and Household Consumption (C). The increases in consumer spending and Business Investments will increase Aggregate Demand (AD) which will shift the AD curve to the right. The rightward shift in the AD curve, assuming the Aggregate Supply curve does not shift, will cause an increase in the general level of prices and an increase in real GDP.

Before you answer the question, identify the four phases of the Business Cycle and indicate which of the phase is associated with a recession.

Writing Requirements (APA format)

Length: 3-5 pages (not including title page or references page)

1-inch margins

Double spaced

12-point Times New Roman font

Title page

References page (minimum of 4 scholarly sources)