ECON545 – Week 6 You Decide Transcript

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ECON545 – Week 6 You Decide Transcript
Scenario
The U.S. economy has fallen into a recession. It is a severe and deep recession, and one that some economic analysts say may persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years. The current unemployment rate is at 8% and is expected to rise further. The inflation rate is -2.4 percent, meaning that overall, prices are falling.
Your Role
You are the new senior economic advisor to the President of the United States, and he has asked for your recommendation on how to proceed. Since you are an experienced Washington consultant, you know that you should first consult several other experts and get their advice. The following colleagues have expressed their insights and recommendations.
Activity
Your task is to take this advice and produce your own recommendation to the President. Do not simply choose one person’s advice, but pick and choose from each recommendation that you receive. Be sure to list what you believe and why you believe it is sound advice from each of your colleagues, and also what you disagree with, and why you disagree with your colleagues. Then, produce a consolidated recommendation of your own. Your submission should be approximately one page (250 words) in length, double-spaced.
Key players
Raymond Burke, Economic Consultant :Well, first we have to distinguish between fiscal policy and monetary policy. As you know, the President does have some control over fiscal policy, along with Congress of course – but concerning monetary policy, only the Federal Reserve Bank can determine and execute monetary policy. I would recommend that the President lowers interest rates further to help businesses and consumers get back on their feet.
Kathy Lee, Former Economic Advisor to the President: I think the President should consider raising taxes and reducing government spending. This will help correct the budget deficit problem and help the economy get rolling again. People will respect this tough decision and once they see that the economy is improving, they will not mind the tax increase as much.
Patricia Lopez, Consultant to the Federal Reserve: I’ll just comment on Fed Policy, as that was my background and expertise. As you know, the Fed has three tools with which to address stability and the growth of our economy. They control the discount rate and federal funds rate, open market operations, and the bank reserve requirement. I think the Fed should leave interest rates alone, but strongly sell bonds and raise the bank reserve requirement. This will increase the money supply and allow banks to be more stable if they hang on to a greater percentage of their customers’ deposits.
Allison Tanney, Economic Consultant: As I see it, we need both expansionary fiscal policy and expansionary monetary policy. The President should work with Congress to increase government spending and lower taxes. As far as monetary policy is concerned, the Federal Reserve Board needs to increase the money supply by buying bonds, raising interest rates, and if necessary, raising the reserve requirement
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