During the recent economic downfall, the government plays a part of important role to overcome the major problems within their own respective country. There are numerous ways to overcome this problem by improving the nation tourism, by doing so it will lure more tourists from all around the world. Basically more tourists mean more money will be penetrated to the economy which wills increases the money supply. Big or small businesses will eventually sprout in order to cater the needs for the tourists.
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Government should also encourage the nation exports because the segment of export business will infuse necessary foreign currencies into the country. With the currencies exchange rate earned it can be used to pay import goods, debts and other necessities.
Develop new market is one of the major contribution factor from the government. Government should expand local company businesses to broader countries such as Japan, Germany, Malaysia, Saudi Arabia and much more. This helped to generate extra volume of growth and create a demand for another shift in manufacturing unit to manufacturing products. More businesses means more jobs opportunity to the people.
Furthermore by implementing effective and speedy way of tax collection measures, the taxes extracted from citizens and businesses can finance the government expenditures such as provision of credit to businesses or budget for social welfare activities and huge economic stimulus packages. Taxation of the income and wealth of the rich people also set a limitation point on higher earnings to remove the reliance on debt to maintain consumption.
Spending large sum of money for Social Welfare to ease the riots and panic and to restore the confidence in the people, this will enable people to get back to their feet and start anew. Indexation of pensions, wages and benefits to protect workers against rises in food and energy prices.
Last but not least, government should control expenditures in other fields, budgeting slash on nonessential expenditures in other areas such as investing in R&D in military weapons, executive positions, legislative and other branches.
Measures taken by the Central Bank
The Central Bank is designed to oversee the banking system and regulates the quantity of money in the economy. The primary functions of the Central Bank are regulating banks to ensure they follow the federal laws intended to promote safe and sound banking practices and to protect the credit rights of consumers. Acts as a banker’s bank by providing loans to banks and as a lender of last resort. Conducts monetary policy by controlling the money supply in the economy in pursuit of maximum employment, moderate long term interest rates and stable prices.
The steps taken by the Central Bank is to increase the money supplies to avoid the risk of having lower wages and higher unemployment rate which lead to a self reinforcing decline in global consumption. The Central Bank will be buying the US Treasuries bonds and other agency debt in hoping to support the US bond market and suppress long-term interest-rates. The Central bank executed two stimulus packages, totaling nearly $1 Trillion between year 2008 and 2009. During last quarter of year 2008, the Central Bank purchase government debt and troubled private assets from banks total amounting of USD$ 2.5 trillion.
By doing the activities above the Central Bank is performing open-market operation. The Central Bank decides to increase the money supply in the economy by instructing its bond traders to buy bonds from the public, firms and private sector in the nation’s bond markets. The dollars the Central Banks pays for the bonds increase the number of dollars in the economy. Some of these new dollars are held as currency, and some are deposited in banks. Each new dollar deposited in the bank increases the money supply and to a greater extent because it also increases the bank’s reserves.
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The Central Bank also can manipulate the money supply with reserve requirement, which are regulations on the minimum amount of reserves that banks must hold against deposits. To increase the money supply, the Central Bank must decrease the reserve requirement as a result, it lowers the reserve ratio, raises the money multiplier.
Last but not least, the Central Bank influences the money supply with altering the discount rate which is the interest rate on the loans that the Central Banks make to other banks. When the Central bank make loan to a bank, the banking systems has more reserves and these additional reserves allow the banking system to create more money. The Central Bank will lower the discount rate, encourages banks to borrow from the Central Bank, increases the quantity of reserves, and the money supply will increase. By doing so, lower interest rates can stimulate economic activities by lowering the cost of borrowing thus making it much more easier for consumers and businesses to build and buy.
Task 3: Highlight some of the signs of recovery shown in the US economy
The Central Bank of US forecast of a recovery later this year by showing of signs of fruition. The US (GDP) gross domestic product is increasing at a rate of 2.8 percent annually, after the four consecutive quarters of contraction. The rate of output growth is the most interpreted along with other signals such as housing prices are increasing. Even though the recovery seems fragile, the output increase may have resulted largely from the replenishment of manufacturing inventories, the first time homebuyers tax credit, and the American Recovery and reinvestment Act’s economic stimulus.
Real recovery in the labor market moreover remains elusive, although output grew between July and September of year 2009 but the numbers of US jobs continued to plummet. Payroll employment decreases to the number of 600,000 during the third quarter and the unemployment rate climbed to 9.8% by September. The most recent report shows that significant amount of people with job losses during November.
However some American economy is not the same everywhere, the US Economy performance is driven largely by its major metropolitan economies, some which are seeing recovery and some are still in recession state. However there are several nation’s 100 largest metropolitan areas posted signs of significant economic growth in the third quarter of year 2009.
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