The New York Times Article “Steady U.S. Job Growth Sets

Course Description Principles of Macroeconomics deals with consumers as a whole, producers as a whole, the effects of government spending and taxation policies, and the effects of the monetary policy carried out by the Federal Reserve Bank. Macroeconomics is concerned with unemployment, inflation, and the business cycle. Text Required: Macroeconomics, Roger A. Arnold, 7th Edition, 2005 Recommended: Macroeconomics Study Guide, Roger A. Arnold, 7th

The unemployment rate has dramatically increased over the last several months. This increase has created many complications for the American people. Although the United States economy has created over 7 million jobs, there is still a long way to go until the economy is back on track.

This also improves the distribution of income, a reduction in the unemployment rate with result in households yet having more spending power and yet encouraging more economic growth. An increase in employment will result in an improvement in the budget deficit as there will be a decrease in the demand for welfare benefits, thus improving the economy. The increase in the supply of goods and services (due to an increase in demand) is also expected to reduce demand pull inflation, as there is now less competition for few goods, lowering the prices to a healthy equilibrium. This can be shown in a demand and supply diagram.

The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic growth and improvements in the job market.

If unemployment rate lowered, that means that the job market would increase. An increase in the job market would vastly increase the overall GDP of an economy (Doc 1). With the economy handing out pink slips and firing employees, a boost in employment would lead to an economic expansion (Doc 3). An economic expansion would go so far as to slow

Since the early 2000’s the unemployment rates of the United States have been constantly changing. For most of this time unemployment rates were increasing at a quick pace as the country was dealing with internal financial issues of its own. When people are out of work the rates of depression and crime seem to skyrocket. This is due to the lack of funds coming into a home which result in some less than admirable acts being committed. There are many causes of unemployment and many effects that unemployment can have on not only our economy, but our personal lives as well.

The discussion of whether the Federal Reserve should raise the federal funds rate is a highly contentious one. Members of the Federal Reserve (“Fed”) and academic economists disagree about what constitutes appropriate future macroeconomic policy for the Unites States. In the past, the Fed had been able to raise rates when the unemployment rate was under 5% and inflation was at a target of 2%. Enigmatically, since the Great Recession and despite a strengthening economy, year-over-year total inflation since 2008 has averaged only 1.4%—as measured by the Personal Consumption Expenditures Price Index (“PCE”). Today, PCE inflation is at 1-1.5% and has continuously undershot the Fed’s inflation target of 2% three years in a row. (Evan 2015) In the six years since the bottom of the Great Recession the U.S. economy has made great strides in lowering the published unemployment rate from about 10% back down to about 5.5%. In light of this data, certain individuals believe that the Federal Reserve should move to increase the federal funds rate in 2015 because unemployment is near 5% and inflation should bounce back on its own (Derby 2015). However, this recommendation is misguided.

In fact, much of the recent reduction in the deficit is due to the decline in unemployment” (p. 1). With record high deficits within the last years the idea of the government spending to spur the economy that ultimately would help reduce the unemployment level seems near impossible without further affecting the deficit rather than helping reduce it.

The first tool the Federal Reserve has for influencing the economy is through the federal funds rate. This allows a change in interest rates which means that banks may have to pay a higher or lower interest rate to the Federal Reserve for borrowing money. If the rate is increased it slows down the economy because the cost for money and credit is increased as well, but if the rate is decreased the economy is more likely to grow because money then becomes more available for investment and growth. The second tool used to influence the economy is through the purchasing or selling of federal debt. Selling federal debt tends to slow down the economy because people are less likely to invest. Buying federal debt tends to help the economy grow by allowing

While there are expectations of a yearly gain of nearly 2.3 million net new jobs, the unemployment rate is still very high i.e. around 6.5 percent. The lower-than-expected job growth is fueled by various factors including government hiring, weather, and Obamacare. Actually, similar to December, January had a lower-than expected increase in job opportunities since only 113,000 jobs were created. However, the rate of unemployment still reduced to 6.6 percent in this month despite of the growth in labor force. The current rate of unemployment is the lowest in U.S. since the 2008 recession because more people are leaving the labor force instead of finding jobs.

When the Federal Open Market Committee (FOMC) wants to increase the money supply, they buy up government bonds from the public on the bonds markets (Mankiw, 2009). The result of buying bonds puts money in the pockets of the public, if the Fed wants to decrease the money supply, they sell off bonds. It is generally thought that when the public has more money available to them, they will consume more. This increased consumption should lead to an overall increase in Gross Domestic Product (GDP) and expansion of the economy.

The unemployment rate in the United States has improved dramatically over the last two years, from a high of 8.3% in July 2012, to a low of 6.6% in January 2014. In October of 2012, the civilian labor force increased from 578,000 to 155.6 million, labor force participation increased up to 63.8%, and total employment overall rose by 410,000! Since then, the unemployment rate has been falling at a stable rate due to a political push from Washington DC and new employment initiatives. The inflation rate over the last 2 years has been relatively stably, with a few major increases and decreases in 2012 and 2013. It reached a high of 2.3% in June of 2012, and reached a low of 1.0% at the end of 2013. The federal interest rate has remained at a constant .25% over the past few years.

The unemployment rate is also affected by monetary policy. “Unemployment that is above the natural rate involves great economic and social costs.” (McConnell & Brue, 2004). GDP GAP and OKun’s Law. McConnell and Brue define this as “when the economy fails to create enough jobs for all who are able and willing to work, potential production of goods and services

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

Discuss the role of government policy in reducing unemployment and inflation. In your discussion make use of the diagrammatic representation of the macroeconomy developed in lectures in Term 2