Business Economics Essay

526 words - 3 pages

Case Study
Business Economics
Jimmie C. Tolbert
Professor Melton
20 August 2012

Responds to Mr. Burke:
As the senior economic advisor to the president, I would have to say that your recommendation of lowering interest rates could potentially have positive effects under the economical principle of short-run. Lowering the interest rates would mean that the money supply in the economic will increase, thereby, giving consumers the opportunity to spend more which, will help to stimulate the demand for goods and services. This will, in turn, signal businesses to increase production of goods and services. In addition, higher production means that more units must be supplied to meet increasing demand. At this point, employers must increase their workforce by at least hiring temporary workers to match output ...view middle of the document...

Respond to Ms. Lee:
Maintaining the right amount of taxation is a very difficult subject that directly deals with taking hard earned money away from consumers. Raising taxes can have a few benefits. First, raising taxes will help to decrease the money supply by allocating the government a higher percentage of workers’ wages to help reduce the national debt. In addition, inflation can greatly be reduced if the government relied more on taxation than borrowing money. Thirdly, higher taxes also mean that the government would have additional money to support federal programs such Medicare, social security, education, and infrastructures. Conversely, the economy is in the
Responds to Ms. Lopez
Leaving the interest rate alone for now is the best economical decision that most economists can agree on. Keeping interest rates low for the next three years will encourage businesses to invest in growth now rather than wait for a time when think it right. Furthermore, keeping the interest as it is would motive people to thinking making major purchases like financing a house and that alone can help stimulate the housing market which, significantly contributed to the fall of the market. I also think that increasing the reserve requirements wouldn’t really play a major role in helping the economy to recovery because it can lead to an excess of money that can cause inflation. What happens if people are not taking loans, but there is a sudden increase in consumer depositing money into the bank? The dollar could possible depreciate in value.
Responds to Ms. Tanney:
Raising bonds to increase the money supply would currently contribute to the inflation rate. In addition, the recommendation you have provide has already been fully addressed.

Reference

Stone, Gerald W. (2011) Core Economics: Worth Publishers

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