Answer to Question #310193 in Macroeconomics for Jack

Question

The college graduates of 2000 could hardly have asked for better luck. The unemployment rate lowered to 4.1% in May 2000 roughly the lowest level in a generation and employers were literally dying for new hires.Set up salaries rose many graduating seniors had many job offers and some firms even offered $10000- $20000 bonuses to students who signed the dotted line. 3 years later the job market for the Class of 2003 was rather different US economic growth had slowed to a crawl and then to a halt. Firms that had stocked up on recent college grads in the tighter labour markets of 1998-2000 found themselves with more than they knew what to do with in 2002 and 2003.They weren’t eager to hire more. Bonuses and other perks died job offers became thinner With the unemployment rate around 6% in May and June of 2003, the job market was far from the worst ever. But it was nothing like the glory days of 2000. Examine 2 fiscal policies and 2 monetary policies that the US government may have used to correct this situation.

Answer 1

The two fiscal policies used included lowering of taxes and increased government spending. Lowering taxes ensured that more money remained in the economy to be used in paying of salaries to prevent a high unemployment rate. Increased government spending ensured that the government spent in the economy providing the citizens with funds due to buying and selling.

Lower reserve ratio and buying of securities are some of the monetary policies used. Decreasing the reserve ratio meant that more funds are released into the economy to support the high employment rate by providing funds while buying of securities in form of treasury and bills form the citizens provides more money into the economy. This money then circulates in the economy and is used in paying of salaries and wages to prevent a high unemployment rate.