Free Critical Thinking About Money Markets And Monetary Institutions Topic
Recent unemployment rate fluctuations. The unemployment rate is one of the key macroeconomic indicators of country’s economic health. The fluctuations of GDP, level of inflation and unemployment measure the overall condition of national economy. According to United States Department of Labor the unemployment rate has decreased from 6.7 percent in December 2013 to 5.6 percent in the respective period of 2014. The gradual decrease was observed throughout 2014 as it is presented in Table 1:
Monthly unemployment rate dynamics in 2014
The constant decline of unemployment rate, as presented in Table 1, can be explained by two main factors. The first is stable GDP growth in 2014. There is a straight-forward correlation between the GDP growth and unemployment rate decrease. According to BEA the real GDP shows positive growth within the previous year at annual rate of 5.0 percent based on the third quarter indicators. The GDP increase reflects economic revival and implies possibilities for creating new workplaces.
The second factor that impacts unemployment rate is labor force participation rate. It is defined as ratio of employed or willing to work people to total population. The decrease of this ratio leads to the decrease of the unemployment rate. Based on the information from United States Department of Labor the annual average labor force participation ratio has decreased from 63.7 percent in 2012 to 62.9 percent in 2014. Basically this means that 1 percent of U.S. population has refused to work or to search for the new job throughout 2014.
Therefore, the unemployment rate decrease is influenced by both the growth of U.S. economy and social issues caused by the 2009 recession.
Fiscal and monetary measures. The U.S. recent years monetary and fiscal policy was aimed to stimulate the recessing economy. The 2014 positive dynamics of main macroeconomic indicators shows that some measures should be altered.
The fiscal policy has significant impact on economic growth by encouraging the aggregate demand. The main instruments of fiscal policy are taxation and government spending. The corporate taxes can be lowered to stimulate entrepreneurship. Lower corporate tax rates can encourage companies to invest into business expansion or to cancel previous loans. Personal income tax can be also slightly reduced in order to boost aggregate demand. On the other hand, many government spending programs should be displaced. This tool is inefficient in terms of economic revival and only causes significant increase of budget deficit.
The purpose of the recent years monetary policy was to maintain low interest rates and avoid money inflation. The 2008 financial collapse has lead to short-term interest rates reduction to almost zero value. They remain extremely low until now. It seems that the rates should be preserved at low level due to uncertainty of international markets. Thus entrepreneurs can afford loans that can stimulate production expansion. Households will still have access to cheap consumption credits. These factors should boost the aggregate demand and supply. The money supply can be gradually increased to support the increasing level of transactions. Basically, primary goal is to raise monetary base proportionally with the level of production in order to avoid the uncontrolled inflation.
Social Security solvency. According to economic projections, the Social Security system (OASDI) will become depleted between 2033 and 2037 which gives the government about twenty years of solvency and time to avoid the collapse. However, Social Security runs deficit each year ($71 billion in 2013) which is covered by Treasury and leads to increase of U.S. public debt.
According to Greszler and Boccia the Social Security return on investment rate for an average senior has fallen significantly over the last fifty years. In 1960 the retiree gained $6.39 for each dollar spent on Social Security tax while in 2010 he will receive only $0.92. If such dynamics will continue, an average American can face poverty after retirement. Obviously, the OASDI has to be reformed as it is loss making and no longer beneficial for society. One of the ways is to increase the retirement age. Nowadays workers retire at the age of 65, however high living standards and advance health care system are the reasons to raise this bar.
Affordable Care Act. The Patient Protection and Affordable Care Act (PPACA) were originally designed to decrease the number of people without health insurance policy and cut the government health care spending. Over several past decades almost 20 percent of the population were not covered by Medicare and Medicaid programs. Obama’s PPACA initiatives do not replace these programs. They present the Health Insurance Marketplace where one can select affordable insurance plan. By the end of 2014 the number of uninsured adults has decreased to 13.4 percent; over 15 million people have participated in Health Insurance Marketplace over the two years. The Patient Protection includes a range of new rights, benefits and protection from discriminations. It is brought to weaken the monopoly of insurance companies and protect the rights of insurants.
The PPACA has improved the Medicare and Medicaid programs, but the federal budget is still facing enormous outlays on insurance. Obama’s act is directed to cut down insurance expenses and increase the tax burden. This reform does not stop disproportional growth of insurance budget expenses, only slows it down for several decades.
United States Department of Labor. (n.d.). Databases, Tables & Calculators by Subject. Retrieved January 23, 2015, from http://data.bls.gov/timeseries/LNS14000000
United States Department of Labor. (n.d.). Databases, Tables & Calculators by Subject. Retrieved January 23, 2015, from http://data.bls.gov/timeseries/LNS11300000
BEA. (n.d.). News Release: Gross Domestic Product. Retrieved January 23, 2015, from http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Greszler, R., & Boccia, R. (2014, August 4). Social Security Trustees Report: Unfunded Liability Increased $1.1 Trillion and Projected Insolvency in 2033. Retrieved January 23, 2015, from http://www.heritage.org/research/reports/2014/08/social-security-trustees-report-unfunded-liability-increased-11-trillion-and-projected-insolvency-in-2033
ObamaCare Enrollment Numbers. (n.d.). Retrieved January 23, 2015, from http://obamacarefacts.com/sign-ups/obamacare-enrollment-numbers/
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